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ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
EBA REPORT
ADVICE TO THE COMMISSION ON KPIS AND METHODOLOGY FOR DISCLOSURE BY CREDIT INSTITUTIONS AND INVESTMENT FIRMS UNDER THE NFRD ON HOW AND TO WHAT EXTENT THEIR ACTIVITIES QUALIFY AS ENVIRONMENTALLY SUSTAINABLE ACCORDING TO THE EU TAXONOMY REGULATION
EBA/Rep/2021/03
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Contents
List of figures 5
1. Executive summary 7
2. Background and rationale 8
ESAs Coordination. Liaison with other EU bodies and with relevant stakeholders 9 Content of the EBA advice 9 Measures to facilitate quantitative disclosure 10 EBA policy work on ESG disclosures 10
3. Advice for credit institutions 11
3.1 Scope of application of the disclosures 11
EBA advice to the Commission 12 3.1.1 Assets/exposures according to the balance sheet under the prudential scope of consolidation 13
EBA advice to the Commission – Balance sheet according to the prudential scope 14 3.1.2 Relevant KPIs to be disclosed by credit institutions 14
EBA advice to the Commission – Relevant KPIs for credit institutions 16 3.1.3 Economic activities to be included in ESG disclosures – Types of financial instruments 17 (i) Green asset ratio (on-balance-sheet exposures) 17 (ii) Off-balance-sheet exposures 19
EBA advice to the Commission – Types of financial instruments to be considered 19 3.1.4 Economic activities to be included in the disclosures – Types of counterparties 20
EBA advice to the Commission – Types of counterparties 20 3.1.5 Economic activities to be included in ESG disclosures – Location of the exposures 22
EBA advice to the Commission – Location of the exposures 23
3.2 Quantitative disclosures, KPIs and methodology 23
3.2.1 Definition of KPIs for taxonomy-aligned exposures (including green asset ratio) and methodology 24
EBA advice to the Commission 25 3.2.2 Green asset ratio (GAR) 25 (i) Green asset ratio for lending activities and equity holdings with non-financial corporates (NFC) subject to NFRD disclosure obligations 26 1) Green asset ratio: methodology for loans and advances – Non-financial corporates subject to NFRD disclosure obligations 27 2) Green asset ratio for debt securities – Non-financial corporates subject to NFRD disclosure obligations 30 3) Green asset ratio for equity holdings – Non-financial corporates subject to NFRD disclosure obligations 32 4) GAR on total financing to NFC subject to NFRD disclosure obligations (lending plus equity holdings) 34 (ii) Green asset ratio for lending activities, equity holdings of financial corporates 35 (iii) Green asset ratio for retail exposures 37 1) Residential real estate lending 38
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2) Retail - Credits for consumption 42 3) Retail – other considerations 43 (iv) GAR for exposures to NFC not subject to NFRD disclosure obligations (including small- and medium-sized enterprises – SMEs) 43 (v) GAR for loans and advances financing public housing 46 (vi) Other on-balance-sheet exposures –Repossessed real estate collateral 47 (vii) TOTAL GAR 48 3.2.3 KPIs for off-balance-sheet exposures 49 (i) Green ratio for financial guarantees of corporates subject to NFRD disclosure obligations (FinGuar KPI) 49 (ii) Green ratio for assets under management (AuM KPI) 50 3.2.4 KPIs for services other than lending – Fees and commissions (F&C KPI) 51 3.2.5 Other disclosures: trading portfolio 52 3.2.6 Timeline for the disclosures 53 (i) Timeline for the disclosure of KPIs related to exposures or services to corporates subject to NFRD disclosure obligations (GAR, FinGuar KPI and AuM KPI, F&C KPI, Trading KPI) 53 (ii) Timeline for the disclosures related to exposures to corporates not subject to NFRD disclosure obligations, including SMEs, and to households 54 (iii) Date of application of the disclosures 55 3.2.7 EBA Advice to the Commission – Quantitative disclosures 55
EBA advice to the Commission – Quantitative disclosures 55
4. Advice for investment firms 62
4.1 Quantitative disclosures, KPIs and methodology 62
4.1.1 Scope of the disclosures 62 EBA advice to the Commission 63
4.1.2 Investment services and dealing on own account 64 (i) KPIs: assets 65 (ii) Investee companies considered 65 (iii) Investment instruments considered – Eligible assets 66 (iv) Calculation methodology 66
EBA advice to the Commission 68 4.1.3 Investment services and activities not dealing on own account 69 (i) KPIs: revenues (fees, commissions and other monetary benefits) 70 (ii) Clients considered 70 (iii) Calculation methodology 70
EBA advice to the Commission 71
4.2 Further considerations 72
5. Advice on qualitative disclosures 74
EBA advice to the Commission – Qualitative information 76
6. Policy recommendations and other considerations 77
6.1 Policy recommendations 77
6.1.1 Continue to take actions to create an enabling disclosure and data framework 77 6.1.2 Aim for international taxonomy standards or minimum criteria and developing an equivalence framework 78 6.1.3 Extend the scope of the Taxonomy to enable more encompassing disclosures 79
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6.1.4 Consider introducing a review clause in the delegated act 80 EBA advice to the Commission 80
6.2 Role of the Taxonomy for the banking sector and interlinkages with other policy developments including EBA mandates 81
7. Costs to banks and investment firms 85
7.1 Credit institutions 85
7.1.1 Key challenges and costs of KPIs for taxonomy alignment 86 7.1.2 Questions on specific KPIs and counterparties 89 7.1.3 Additional information about the portfolio composition 94
7.2 Investment firms 95
7.2.1 Key challenges and costs of KPIs for taxonomy alignment 95
ANNEX III – Aggregate coverage of KPIs proposed for credit institutions 98
Annex IV - Other feedback from the industry 102
7.3 Summary of the feedback received – Credit institutions 103
7.3.1 Responses to the EBA survey 103 7.3.2 Feedback from bilateral meetings with stakeholders and the EBA workshop 106
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List of figures
Figure 1: Scope of the disclosures on environmentally sustainable economic activities under Article 8 of the Taxonomy Regulation (credit institutions) 12
Figure 2: Types of counterparties 20
Figure 3: KPIs – quantitative disclosures by credit institutions 24
Figure 4: GAR Loans and advances to NFC subject to NFRD disclosure obligations 27
Figure 5: GAR total financing extended to NFC subject to NFRD disclosure obligations 34
Figure 6: GAR Loans and advances, debt securities and equity holdings of financial corporates 35
Figure 7: GAR retail exposures 37
Figure 8: GAR for exposures to NFC not subject to NFRD disclosure obligations (including small and medium-sized enterprises – SMEs (including other NFC not subject to NFRD disclosure obligations) 43
Figure 9: GAR Local government/municipalities exposures 46
Figure 10: GAR Retail exposures 47
Figure 11: KPI for financial guarantees (FinGuar KPI) - Corporates subject to NFRD disclosure obligations 49
Figure 12: Green ratio for AuM - Corporates subject to NFRD disclosure obligations 50
Figure 13: Summary of proposed KPIs for taxonomy-aligned activities, explained in this section of the document 58
Figure 14: Investments: investment services and dealing on own account 64
Figure 15: Investments: investment services and dealing on own account 64
Figure 16: Revenue (fees, commissions and other monetary benefits): investment services and activities not dealing on own account 69
Figure 17: Scoring of key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (10 = extremely challenging, 0 = not at all challenging) 88
Figure 18: Estimated cost contribution of each factor for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy 89
Figure 19: Costs associated with different KPIs proposed 90
Figure 20: KPIs for loans collateralised by immovable property 93
Figure 21: KPI for fee and commission income: Climate change mitigation 94
Figure 22: KPI for fee and commission income: Climate change adaptation 94
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Figure 23: Scoring of key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (10 = extremely challenging, 0 = not at all challenging) 96
Figure 24: Cost contribution of various factors for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (investment firms) 97
Figure 25: Coverage of the KPIs proposed in the advice (as a share of total EU financial assets) 98
Figure 26: GAR on EU exposures: share of different counterparties (as of Q3 2020) 99
Figure 27: EU institutions' exposures by different types, counterparties and geography as of Q3 2020 100
Figure 28: EU banks' exposures by different types, counterparties and geography as of Q3 2020 101
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1. Executive summary
Regulation (EU) 2020/852 1 , on the establishment of a framework to facilitate sustainable
investment (Taxonomy Regulation) requires any undertakings subject to disclosure obligations
under the non-financial reporting directive (NFRD)2 to disclose information on how and to what
extent their activities are associated with economic activities that qualify as environmentally
sustainable under the same Regulation. In September 2020, the Commission sent a call for advice
(CfA) 3 to the three ESAs on key performance indicators (KPIs) and methodologies for the
implementation of the disclosures required under Article 8 of the Taxonomy Regulation by the
undertakings under their remit (credit institutions and investment firms in the case of the EBA).
This report complements the EBA Opinion on the disclosure requirement on environmentally
sustainable activities in accordance with Article 8 of the Taxonomy Regulation, and elaborates on
the definition of KPIs and related methodology for the disclosure by credit institutions and by
investment firms of information on how and to what extent their activities are related to economic
activities that are environmentally sustainable in accordance with that Regulation. It also
elaborates on the EBA advice on qualitative information that institutions should disclose and on
policy recommendations to the Commission, with a view to facilitating transparency and disclosure
by institutions. Finally, it includes an assessment of the implementation costs and coverage of the
proposed KPIs and disclosures.
1 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020) 2 https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/non-financial-reporting_en 3 https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/200915-sustainable-finance-taxonomy-call-for-advice_en.pdf
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2. Background and rationale
1. Article 8 of the Taxonomy Regulation requires any undertaking subject to disclosure obligations
under the NFRD to disclose information on how and to what extent the undertaking’s economic
activities are associated with economic activities that qualify as environmentally sustainable
under Articles 3 and 9 of the same Regulation.
2. Corporates will have to start disclosing this information from January 2022, with disclosure
reference date end 2021, for the environmental objectives of climate change mitigation and
climate change adaptation. From January 2023, with disclosure reference date end 2022, they
will have to start disclosing similar information for the other environmental objectives included
in Article 9 of the Taxonomy Regulation: sustainable use and protection of water and marine
resources; the transition to a circular economy; pollution prevention and control; the protection
and restoration of biodiversity and ecosystems. Article 8 of the Taxonomy Regulation mandates
the Commission to adopt a delegated act specifying the required disclosures both for financial
and non-financial corporates.
3. Article 8 further states that non-financial undertakings under the NFRD shall disclose the
proportion of their turnover, capital expenditures (Capex) and operating expenditure (Opex)
associated with environmentally sustainable economic activities, as per the EU Taxonomy.
Article 8 does not specify equivalent indicators on taxonomy alignment for financial
undertakings with NFRD disclosure obligations.
4. On 15 September 2020, the Commission issued a CfA to the three European Supervisory
Authorities (ESAs) on key performance indicators (KPIs) and related methodology, for the
disclosure of how and to what extent the activities of undertakings under their remit, and with
NFRD disclosure obligations, qualify as environmentally sustainable as per the Taxonomy.
5. In particular, the Commission asks the EBA to investigate and determine the content and
presentation of relevant KPIs and associated methodology that should be used by banks and
investment firms under the scope of application of the NFRD to disclose their degree of
taxonomy compliance in accordance with Article 8 of the Taxonomy Regulation. The content of
the advice should be sufficient to form the basis of an impact assessment for a delegated act
based on the Taxonomy Regulation that the Commission will adopt by June 2021.
6. The CfA includes three specific questions that the EBA is asked to answer:
a. What information should banks and investment firms subject to the NFRD disclose
(e.g. as part of their prudential and broader ESG disclosures) on how their financial
or broader commercial activities align with economic activities identified as
environmentally sustainable in the EU Taxonomy, whether carried out in-house or
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performed by third parties? Which financial or commercial activities should be
included/excluded?
b. If turnover, Opex and Capex were not considered appropriate, what alternative
indicators would achieve the same purpose? What KPIs are best suited to disclose
information identified in (1) above? What should constitute the numerator and the
denominator for a specific KPI for banks and investment firms?
c. Could the green asset ratio be adapted to include taxonomy-related disclosures?
7. The EBA is asked to advise on the scope of activities/exposures that should be covered by the
proposed KPIs and the green asset ratio, to assess whether all activities should be covered
retroactively, or only those corresponding to the disclosure period, and to identify possible
proxies until proper information on taxonomy alignment is available. The deadline to respond
to the CfA is end February 2021.
ESAs Coordination. Liaison with other EU bodies and with relevant stakeholders
8. While the three ESAs will submit their advice to the Commission separately, they are
coordinating their work in order to ensure consistency in their responses. The ESAs have also
liaised with other EU bodies, notably with the Commission’s Joint Research Centre (JRC), with
the European Financial Reporting Advisory Group (EFRAG), and with the Platform on Sustainable
Finance.
9. Furthermore, the EBA is asked in the CfA to engage with stakeholders and to gather qualitative
and quantitative evidence to support our proposals. The EBA has intensively engaged with credit
institutions. In particular, on 17 September 2020 the EBA launched a survey4, addressed to credit
institutions, with questions relevant for the response to the CfA, including the three questions
raised to the EBA in the CfA. The EBA received 54 responses to the survey. In addition, the EBA
held several workshops with credit institutions and industry associations in October 2020, and
collected data on the cost/benefit of the disclosures proposed through a case study shared with
a sample of banks. The EBA is using all the feedback received as input for the response to the
CfA.
10. Moreover, the EBA launched another survey addressed to investment firms, including the three
questions included in the CfA and other questions related to the KPIs that the EBA is proposing
for this type of institution, and held meetings with significant stakeholders, in order to collect
relevant feedback for the part of the advice that refers to investment firms.
11. A summary of the main feedback received in these interactions is included as an annex at the
end of this report.
Content of the EBA advice
4 https://eba.europa.eu/eba-seeks-input-institutions-their-esg-disclosure-practices
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12. The EBA’s advice provides specific KPIs and methodology for the disclosures related to the
objectives of climate change mitigation and adaptation, as the screening criteria to identify
taxonomy-aligned activities have been developed only for those objectives, and the disclosure
requirements apply from January 2022. The advice includes, in addition, general proposals
regarding the other environmental objectives, but these proposals should be revised and further
clarified once the screening criteria for these objectives have been specified during the course
of 2022, taking into account that the disclosures relevant for these objectives will be applicable
only from January 2023.
13. In particular, the advice defines the green asset ratio (GAR) for the different on-balance-sheet
portfolios and objectives and at aggregate level, a KPI for the most relevant off-balance-sheet
assets (assets under management and financial guarantees) and a ratio based on fees and
commissions for services other than lending and asset management. The EBA also defines
templates and instructions with the quantitative information used for the calculation of the KPIs.
The advice includes guidance for the disclosure of information for portfolios where disclosures
are more challenging, due to the location of the counterparty (exposures outside the EU) or the
variable nature of the portfolio (trading portfolio). For the trading book, a separate KPI is
proposed only for credit institutions with a significant trading portfolio.
14. In addition, the EBA proposes qualitative information to be disclosed by credit institutions and
investment firms that should complement the KPIs and quantitative disclosures.
15. The EBA also advises on policy considerations and recommendations addressed to the
Commission on those aspects that should be considered in the future to facilitate institutions’
disclosures.
16. Finally, as supporting information, the report includes a cost-benefit analysis of the disclosures
proposed, and the coverage of the proposed KPIs. The analysis is based on information collected
through the surveys and through a case study responded to by a sample of institutions, and on
supervisory reporting data.
Measures to facilitate quantitative disclosure
17. The EBA acknowledges the challenges faced by institutions when preparing the disclosures
required by the Taxonomy Regulation. The EBA puts forward in its advice several proposals to
support institutions in the process of preparing these disclosures.
EBA policy work on ESG disclosures
18. When drafting this advice, the EBA has worked in parallel on its consultation paper on draft ITS
on prudential disclosures on ESG risks, for disclosures required from large institutions under the
scope of Regulation (EU) No 575/2013 (CRR) in accordance with Article 449a of the CRR and to
fulfil the mandate to the EBA included in Article 434a of the CRR. The EBA has worked on both
products in parallel in order to ensure consistency in definitions and methodologies and in those
disclosures and KPIs that are common to both frameworks.
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3. Advice for credit institutions
3.1 Scope of application of the disclosures
19. The Commission’s CfA includes two specific questions addressed to the EBA on the type of
information and KPIs that banks should disclose in order to show their level of alignment with
the EU Taxonomy, and on the type of activities that should be considered in these disclosures.
In particular, the following questions are raised to the EBA regarding disclosures by banks and
investment firms and related KPIs.
a. Which financial or commercial activities should be included/excluded?
b. What should constitute the numerator and the denominator for a specific KPI for
banks and investment firms?
20. This section explains the scope of application of the disclosures that credit institutions should
provide in application of Article 8 of the Taxonomy Regulation and the economic activities that
should be included in those disclosures. It also elaborates on what should constitute the
numerator and denominator of the KPIs proposed.
21. Figure 1 below provides an overview of the scope of the disclosures, based on the arguments
and conclusions that are explained in the section.
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Figure 1: Scope of the disclosures on environmentally sustainable economic activities under Article 8 of the Taxonomy Regulation (credit institutions)
EBA advice to the Commission
22. When assessing which financial and commercial activities should be included in the information
that banks and investment firms have to disclose under Article 8 of the Taxonomy Regulation,
the EBA has considered that all financial activities (investments and lending) and commercial
activities (services provided other than lending) for which the sustainability assessment can be
conducted should be included.
23. Hence, where institutions’ counterparties or clients will be obliged to disclose relevant
information (in accordance with Article 8 of the Taxonomy Regulation), or where it is possible
to assess alignment of the institutions’ investing or lending portfolio with the Taxonomy through
the application of taxonomy screening criteria on the activities and counterparties financed, the
EBA’s advice is that those activities should be included in the disclosures. Conversely, where
counterparties and clients are not obliged to disclose relevant information and it is not possible
to ‘map’ and therefore assess their economic activities according to taxonomy screening criteria,
the EBA’s advice is to exclude the institutions’ related and economic activities from the
information to be disclosed.
24. The KPIs should be defined consistently, and the EBA considers that if certain activities are
excluded from the numerator on the basis that it is not possible to assess their sustainability,
they should also be excluded from the denominator. Including them in the denominator but not
in the numerator would mean, de facto, that they are also included in the numerator but with a
Environmental objectives and
risks
Climate change mitigation
Loans, debt securities, equity (not HfT),
repossessed real estate, financial guaranties, AuM
Financial corporates, NFCs including SMEs,
municipalities, households
KPIs: GAR; financial guarantees; AuM; fees and
commission income
Information on stock and flow; on transitional and
enabling activities; and on specialised lending
Separate disclosure for non-EU (best effort basis) and for trading portfolio
Climate changeadaptation
Loans, debt securities, financial guaranties and equity (not HfT), financial
guaranties and AuM
Financial corporates, NFCs, including SMEs
KPIs: GAR; financial guarantees; AuM; fees
and commission income
Information on stock and flow; on transitional and
enabling activities; and on specialised lending
Separate disclosure for non-EU (best effort basis) and for
trading portfolio
Other environmental
objectives
Similar KPIs as for climate change mitigation and
adaptation
Qualitative information and policy recommendations
Disclosures under Article 8 Taxonomy by credit institutions
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0% weight, that is, assuming that no part of the activity is associated with activities that qualify
as environmentally sustainable, which is inaccurate, as in reality there is no methodology or
public information that allows their sustainability to be assessed. If the information is presented
this way, it will be misleading and institutions may be encouraged to improve their KPIs by purely
reducing the denominator, moving their financing away from those activities. Alternatively, the
EBA advises that institutions should disclose together with the value of the KPI information on
its coverage (e.g. in the case of the green asset ratio (GAR), percentage of institutions’ total
assets included in the GAR calculation).
25. A similar approach is advised in the case of investment firms.
3.1.1 Assets/exposures according to the balance sheet under the prudential scope of consolidation
26. In the case of banking groups and the disclosure of information on taxonomy alignment at
consolidated level, the financial and commercial activities to be considered can be taken into
account based on the exposures and assets as per the balance sheet under the regulatory scope
of consolidation, or according to the balance sheet under the accounting scope of consolidation.
27. In accordance with Article 4(28), (29) and (30) of the CRR, under the regulatory scope of
consolidation, subsidiaries and participations in institutions (credit institutions and investment
firms) and other financial institutions (with the exception of the insurance business) are
considered in the consolidation process. Participations in those subsidiaries that are not
included in the prudential scope of consolidation are reflected in the prudential consolidated
balance sheet statements of the group on the asset side, as ‘Investments in subsidiaries, joint
ventures and associates’. Pillar 3 disclosures by credit institutions, in accordance with the CRR,
including financial disclosures on, for instance, non-performing exposures or disclosures on ESG
risks, as well as their supervisory reporting of financial information (FINREP5) are fully based on
the information as registered in the prudential balance sheet.
28. Under the accounting scope of consolidation, subsidiaries that are insurance undertakings and
non-financial corporations are also included in the consolidation process (FINREP ANNEX V, Part
2, 209).
29. The lending and financing activity of credit institutions to the real economy is better reflected in
the institutions’ balance sheets under the prudential scope of consolidation, as it includes
lending and financing exposures to non-financial companies (including industrial companies)
even if they are subsidiaries of the bank. Credit institutions are already required to report their
prudential balance sheet under the CRR and under the FINREP implementing technical
5 https://www.eba.europa.eu/risk-analysis-and-data/reporting-frameworks
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standards,6 and therefore calculating the KPIs based on this balance sheet does not represent
an extra burden for them. If the balance sheet under the accounting scope of consolidation were
to apply, banks would have to provide, in addition, information on intragroup exposures to non-
financial subsidiaries in order to reflect their environmental impact through lending and
financing to industrial subsidiaries, for instance, with an extra burden that is not necessary, as
the relevant information is already available in the prudential balance sheet.
EBA advice to the Commission – Balance sheet according to the prudential scope
30. The disclosure of the relevant KPIs should consider the credit institutions’ balance sheets and
P&L accounts produced according to the prudential scope of consolidation.
31. This way the KPIs will provide specific information on the alignment with the Taxonomy of
exposures and assets to non-financial subsidiaries, as they are not eliminated in the
consolidation process and the equity holdings are reflected in the portfolio of investment in
subsidiaries, joint ventures and associates.
32. This approach does not represent an extra burden for credit institutions, as they are already
reporting their prudential balance sheets and P&L accounts to the supervisory authorities, and
disclosing financial information based on the prudential balance sheet in their Pillar 3 reports. If
the financial statements according to the accounting scope were to be considered, credit
institutions would have to provide additional information on intragroup exposures to, for
instance, industrial subsidiaries, which would involve an additional burden.
3.1.2 Relevant KPIs to be disclosed by credit institutions
33. In accordance with Article 4 of the CRR, a 'credit institution' is an undertaking, the business of
which is to take deposits or other repayable funds from the public and to grant credits for its
own account.
34. Lending activity is the main business of credit institutions. Credit institutions have the capacity
and the ability to reorient capital flows towards environmentally sustainable activities, and to
help their counterparties in the transition to a green economy, through their lending business.
Lending is also their main source of revenues and profits through the net interest margin, and
one of their main sources of losses due to provisions and impairments.
35. The best way to show the extent to which the financial activities of a credit institution are aligned
with the Taxonomy is to show the extent to which they are financing activities that are
taxonomy-aligned, based on the composition of their lending and financing exposures, including
loans and advances and debt securities, and of their equity instruments. Disclosures regarding
institutions’ financial activities should be based on the composition of their exposures. This will
provide a clearer picture than the disclosure of information on the composition of their interest
6 https://www.eba.europa.eu/regulation-and-policy/supervisory-reporting/implementing-technical-standards-on-supervisory-reporting-changes-related-to-crr2-and-backstop-regulation
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margin (interest income can be very different for legacy assets and stock compared to new
loans, and it is not so representative of the composition of banks’ activities). The KPIs should
provide information on the ratio of taxonomy-aligned exposures for loans and advances, debt
securities and equity holdings (so called green assets) compared to total exposures (green asset
ratio).
36. Information on the lending portfolio of institutions should include (point-in-time) information
on the stock of lending at the disclosure reference date, and information on (the flow of) new
lending during the disclosure period (e.g. over a year or 6 months depending on the disclosure
period). The point-in-time information on the stock of lending is necessary to understand the
institution’s level of alignment with the Taxonomy, and its level of exposure to environmental
risks. The information on flows, based on new loans, is necessary to understand how the
institution is transitioning and helping its counterparties in the transition to sustainable
economy.
37. Equity holdings - Credit institutions may also reorient capital flows and finance taxonomy-
aligned activities through their holdings of equity instruments. Therefore, institutions should
also disclose information on the ratio of taxonomy-aligned equity holdings (green assets)
compared to total equity holdings.
38. Commercial services other than lending - In addition to the lending activity and the related
interest margin, commercial activities that generate fee and commission income are another
main source of income for credit institutions. This source of income has increasing relevance in
the current context of lower for longer interest rates, and is linked to services provided by the
institution other than lending, including7:
issuance or other services related to third party securities; reception, transmission and
execution on behalf of customers of orders to buy or sell securities; merger and acquisition
corporate advisory services; corporate finance services related to capital market advisory
services for corporate clients or other; clearing and settlement services; custody and other
related services; fee and commission income for the distribution of products issued by
entities outside the prudential group to its current customers; loan servicing activities;
foreign exchange services and international transactions.
39. Credit institutions should disclose KPIs for the part of fee and commission income linked to
services provided to corporates aligned with the Taxonomy. The KPIs should show the
proportion of the institution’s fee and commission income derived from products or services
associated with economic activities that qualify as environmentally sustainable.
40. Off-balance-sheet exposures – Credit institutions may also influence the orientation of capital
flows towards more or less sustainable economic activities through their off-balance-sheet
exposures, for example by backing loans that are financing taxonomy-aligned activities, or in the
7 Fee and commission income as reported by credit institutions in FINREP, and according to the breakdown of services reported in template ‘22.1 Fee and commission income and expenses by activity’
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case of their asset management services, by investing the assets under management in
corporates that are more or less aligned with the Taxonomy Regulation. A complementary ratio
on the level of alignment with the Taxonomy of relevant off-balance-sheet exposures, based on
the underlying assets, should be disclosed.
41. In accordance with the above, the turnover indicator defined by Article 8 of the Taxonomy
Regulation for non-financial corporates (NFC) is not the most suitable KPI for credit institutions
to disclose, given the variety of counterparties and economic activities financed by banks and
the differences sources of income they rely on. Additionally, the main sources of GHG emissions
by credit institutions are scope 3 emissions that occur in the value chain of the institutions linked
to the GHG emissions of their counterparties, and not the scope 1 direct GHG emissions or scope
2 GHG emissions linked to their own consumption of purchased electricity, heat, or steam.
Consequently, the indicators defined for NFC in Article 8 of the Taxonomy Regulation in terms
of operational expenses (Opex) or capital expenses (Capex) for investments aimed at reducing
direct GHG emissions or the emissions linked to own consumption, are also not KPIs that credit
institutions should disclose.
EBA advice to the Commission – Relevant KPIs for credit institutions
42. Credit institutions should disclose the following information on their level of alignment with the
Taxonomy.
43. The main KPI showing the overall alignment of credit institutions’ balance sheets with the
Taxonomy should be the green asset ratio (GAR), which relates to their lending business,
including loans and advances and debt securities, and to their equity holdings. Credit institutions
should provide information on the green asset ratio that shows the proportion of taxonomy-
aligned exposures (green assets) compared to total eligible exposures.
44. Information on the lending and equity portfolio should include point-in-time information on the
stock of loans, to show the level of alignment of the institutions’ activities with the Taxonomy;
and on flows of new lending to show how they are transitioning towards sustainable economic
activities, how they are adapting to new climate change circumstances, and how they are
helping their counterparties in the transition and adaptation path.
45. For their commercial activities, including business and services to corporates that generate fee
and commission income, other than lending, equity holdings or asset management, credit
institutions should disclose information on the proportion of the institution’s fee and
commission income derived from those products or services that are associated with economic
activities that qualify as environmentally sustainable.
46. For their off-balance-sheet exposures, credit institutions should disclose a ratio based on the
level of alignment with the Taxonomy of the underlying assets of the relevant off-balance-sheet
exposures, including financial guarantees and assets under management.
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47. In addition, credit institutions should provide separate disclosures for their trading portfolio in
terms of overall composition, trends, targets and limits. More granular disclosures are proposed
for those institutions with a higher level of trading activity, and whose trading portfolio is above
a certain threshold.
48. Credit institutions should disclose the information required in Article 8 of the Taxonomy
Regulation using the KPIs specified in this box and in the rest of this document and not the KPIs
proposed under Article 8 of the Taxonomy Regulation for non-financial corporates in terms of
turnover, capex and Opex, for the reasons explained in the paragraphs in this section.
3.1.3 Economic activities to be included in ESG disclosures – Types of financial instruments
(i) Green asset ratio (on-balance-sheet exposures)
49. The green asset ratio on lending activities and equity holdings should show the level of
alignment of credit institutions’ lending and financing activities with the Taxonomy, and should
therefore focus on the asset side of credit institutions’ balance sheets. Credit institutions should
provide information on the green asset ratio, including:
a. Loans and advances
b. Debt securities
c. Holdings of equity instruments
d. Repossessed collaterals
50. The next paragraphs in this section elaborate on the accounting categories of financial assets
that credit institutions should consider in the calculation of their green asset ratio.
51. Financial assets held for trading are those acquired mainly with the purpose of selling or
repurchasing them in the near term. According to IFRS 9, trading generally reflects active and
frequent buying and selling, and financial instruments held for trading are generally used with
the objective of generating a profit from short-term fluctuations in price or the dealer’s margin.
The temporary nature of these investments is less compatible with the nature of taxonomy-
aligned activities, which should substantially contribute to environmental objectives.
In addition, disclosure of information on taxonomy alignment for this type of volatile
investment can lead to undue ‘window-dressing’ practices as of the disclosure reference
date, given their short-term nature.
Financial assets held for trading should therefore be excluded from the calculation of the
green asset ratio.
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Alternatively, institutions should disclose information on the composition of their trading
portfolio as a whole, and whether there is any trend in terms of predominant sectors and
their alignment or misalignment with the Taxonomy. In those cases where the trading
portfolio of the institution is above a minimum threshold, additional disclosures should be
required in order to show what type of exposures and markets the trading activity of the
institution takes place in, and a separate KPI for the absolute volume of sales and purchases
of taxonomy-aligned securities compared to total transactions of eligible securities should
be disclosed.
52. The accounting category of financial assets at amortised cost refers to debt instruments,
including loans and advances and debt securities, that are held in order to collect contractual
cash flows and meet the IFRS 9 ‘solely payments of principal and interest’ on the principal
amount outstanding test (SPPI test). The long-term nature of the business model behind these
instruments makes them clearly suitable and compatible with the definition of taxonomy-
aligned activities that should substantially contribute to environmental objectives. Therefore,
this category of instrument should be considered as eligible in the calculation of the green asset
ratio.
53. Debt instruments, including loans and advances and debt securities, that are classified as
financial assets at fair value through other comprehensive income are not held for trading but
form part of a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets, and meet the SPPI criterion. While their long-term nature is
not as clear as in the case of debt instruments at amortised cost, their volatility is not
comparable to the held for trading portfolio, and they can still contribute substantially to
environmental objectives. This is also the case of equity instruments that are not held for trading
and are classified as financial assets at fair value through other comprehensive income.
Therefore, these categories of instruments, both equity and debt instruments, should be
included in the calculation of the green asset ratio.
54. Similarly, the following residual accounting categories should be part of the GAR calculation:
Financial assets that are not held for trading but are classified as financial assets designated
at fair value through profit or loss. This category includes debt instruments that under IFRS
9 are designated as such at initial recognition to reduce or eliminate accounting
mismatches.
Non-trading financial assets mandatorily at fair value through profit or loss, including debt
and equity instruments, that are reclassified to this category in the infrequent case of a
change in the credit institution’s business model for managing financial assets.
55. Finally, and given the prudential scope of consolidation proposed regarding the delimitation of
the activities to be included in the green asset ratio, the portfolio of investments recognised as
‘Investments in subsidiaries, joint ventures and associates’ should also be considered in the
calculation of the green asset ratio, so that the disclosure reflects the level of alignment of the
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credit institution’s non-financial and/or insurance subsidiaries or participations with the
Taxonomy.
56. Other on-balance-sheet exposures to be considered include real estate collaterals obtained by
the credit institution by taking possession, and recognised as non-current assets held for sale in
the balance sheet of the bank at the disclosure reference date.
(ii) Off-balance-sheet exposures
57. Credit institutions should consider those off-balance-sheet exposures that they manage and that
channel or contribute to channelling capital flows into economic activities whose environmental
sustainability can be assessed in accordance with the Taxonomy Regulation, mainly:
a. financial guarantees backing loans and advances and other debt instruments of
corporates, as by backing them the institution is facilitating the actual financing of
those activities;
b. assets under management, as the institution is orienting their customers’ capital
towards specific activities or counterparties that can be assessed under the
Taxonomy Regulation.
58. Other off-balance-sheet exposures such as commitments are not considered as they do not
finance any activity while they are available and registered as off-balance-sheet exposures.
EBA advice to the Commission – Types of financial instruments to be considered
59. Green asset ratio (on-balance-sheet exposures).
60. The calculation of the green asset ratio (on-balance-sheet exposures) should include the
following accounting categories of financial assets (including loans and advances, debt securities
and equity holdings): financial assets at amortised cost, financial assets at fair value through
other comprehensive income, investments in subsidiaries, joint ventures and associates,
financial assets designated at fair value through profit or loss and non-trading financial assets
mandatorily at fair value through profit or loss. It should also include the real estate collaterals
obtained by credit institutions by taking possession in exchange for the cancellation of debts.
61. Financial assets held for trading should be excluded from the calculation of the green asset ratio
at this stage. Alternatively, separate disclosures are proposed.
62. This means that debt instruments (including debt securities and loans and advances) and equity
instruments should be considered in the environmental disclosures and for the calculation of
the green asset ratio when they fall under any of the relevant accounting categories. While
derivatives should be excluded.
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63. The calculation of KPIs for off-balance-sheet exposures should consider financial guarantees
granted by the bank and assets under management for guarantee and investee corporates
subject to NFRD disclosure obligations.
64. As an alternative to disclosing KPIs for the HfT, institutions should provide explanations on their
investment policy regarding the trading portfolio, its composition as a whole, and any trend in
terms of predominant sectors and their level of alignment with the Taxonomy. They should also
explain potential limits in terms of environmental risks, targets in terms of the level of alignment
of the Taxonomy, and how they manage the environmental risks that may impact the value of
the portfolio. In those cases where the trading portfolio of the credit institution is above a
combined threshold, a separate and specific KPI for the trading book is proposed.
3.1.4 Economic activities to be included in the disclosures – Types of counterparties
65. FINREP includes information for different types of counterparties for the different types of
financial assets considered under the scope of the disclosures. The table below lists the different
types of counterparties included in FINREP and an assessment of their consideration for the
disclosure of information on taxonomy-aligned exposures, based on whether it is possible to
apply to them the Taxonomy and on the possibility of obtaining access to relevant information.
EBA advice to the Commission – Types of counterparties
66. The following types of counterparties should be considered when calculating and disclosing the
KPIs under Article 8 of the Taxonomy Regulation.
Figure 2: Types of counterparties
Type of instrument and counterparty Relevance for environmental disclosures
Equity instruments Equity instruments
Of which, credit institutions
Relevant. To be considered, given the relevance of these exposures in credit institutions’ balance sheets, and the possibility of assessing them based on the counterparties’ public disclosures, even if the impact on the environment is indirect through counterparties that also have an indirect impact on the environment.
Of which, other financial corporations
Relevant. To be considered, based on counterparties’ disclosures, given the relevance of these exposures in credit institutions’ balance sheets, even if the impact on the environment is indirect through counterparties that also have an indirect impact on the environment.
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Of which, non-financial corporations
Relevant. To be considered, based on counterparties’ disclosures or on the object and activity financed through specialised lending.
Debt securities Debt securities
Of which, central banks
Not considered at this stage. While they are relevant exposures that should be eventually added to the calculations, they are not included at this stage given that it is not possible to apply the taxonomy screening criteria to them and that they are not subject to standardised ESG disclosure obligations.
Of which, general governments
The FINREP definition of general governments includes central governments, state or regional governments and local governments, including administrative bodies and non-commercial undertakings, but excluding public companies and private companies held by these administrations that have a commercial activity (which shall be reported under ‘credit institutions’, ‘other financial corporations’ or ‘non-financial corporations’ depending on their activity); social security funds; and international organisations, such as institutions of the European Union, the International Monetary Fund and the Bank for International Settlements. Exposures to general governments should not be considered at this stage for the calculation of KPIs. While they are relevant exposures that should be eventually added to the calculations, at this stage they are not covered by the Taxonomy Regulation, and general governments are not subject to disclosure obligations under the NFRD. It would be difficult for banks to assess the alignment of their sovereign bond portfolios other than for the small portion of potential green bonds (in the absence of an EU green bond standard). There are exceptions, such as exposures to municipalities, which in the case of some public banks represent the bulk of their exposures, for instance, house financing exposures, where institutions can rely on information provided by energy performance certificates for the environmental objective of climate change mitigation.
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Credit institutions Relevant (see above)
Other financial corporations Relevant
Non-financial corporations Relevant
Loans and advances Loans and advances
Central banks Not considered at this stage. See comment above
General governments Not considered at this stage. See comment above
Credit institutions Relevant
Other financial corporations Relevant
Non-financial corporations Relevant
Of which, small and medium-sized enterprises
Relevant
Households
Relevant. Particularly the mortgage portfolio, house renovation loans and part of the credit consumption portfolio (motor vehicle loans) as they can be assessed under the relevant taxonomy screening criteria for the objective of climate change mitigation based on the information provided by the energy performance certificate of the underlying asset (immovable property or car).
67. These types of counterparties are considered when specifying the environmental disclosures.
When proposing specific KPIs and disclosures for each type of environmental objective and risk,
the KPI may cover all or only part of these types of counterparties depending on their relevance
for the specific KPI.
3.1.5 Economic activities to be included in ESG disclosures – Location of the exposures
68. A recurring concern shared by credit institutions in the feedback received, particularly by those
internationally active banks with subsidiaries outside the EU, refers to the fact that the EU
Taxonomy and the NFRD apply only in EU jurisdictions and that it will be extremely challenging
to collect information from their counterparties for exposures outside the EU.
69. The EBA acknowledges the challenges deriving from the level of application of the EU Taxonomy
and the NFRD, particularly in the case of general lending where the use of proceeds is unknown
and credit institutions must rely on the information that their counterparties will have to
disclose under Article 8 of the EU Taxonomy regarding their proportion of taxonomy-aligned
activities.
70. At the same time, given the relevance of non-EU subsidiaries in these banking groups, leaving
exposures to non-EU counterparties totally outside the scope of the disclosures would lead to
an incomplete picture of the level of alignment of these banks’ activities with the Taxonomy.
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71. The EBA proposes that, as a minimum, credit institutions with non-EU subsidiaries should
identify lending and equity exposures to non-EU counterparties that pertain to sectors (NACE
sectors 4 levels of detail) covered by the Taxonomy. Then, proxies should be used to determine
on a best effort basis the part of those exposures aligned with the Taxonomy, and this
information should be disclosed separately from the EU GAR with appropriate caveats. These
proxies could be:
a. Based on the counterparties’ disclosures on the basis of international standards
(e.g. TCFD), when available. In this case, institutions should explain the type of
information available and the standards applied;
b. Based on institutions’ own models and the classification of exposures according to
these. In this case institutions should explain the main features of the models and
classification criteria applied;
c. Based on public data and proxies at aggregate sector level. In this regard, the
development by the Commission of coefficients on aggregate alignment with the
Taxonomy by sectors for non-EU jurisdictions would support credit institutions’ in
their transparency efforts and further emphasise the EU’s efforts to promote the
path towards sustainability.
72. Credit institutions with non-EU subsidiaries should in any case calculate and separately disclose
a GAR for EU exposures, in accordance with the Taxonomy and the methodology proposed in
this document.
EBA advice to the Commission – Location of the exposures
73. Given the heightened challenges in terms of data availability for those exposures to
counterparties outside the EU, institutions with non-EU subsidiaries should calculate and
separately disclose a GAR for EU exposures only, in accordance with the Taxonomy and the
methodology proposed in this document.
74. Those banking groups with subsidiaries outside the EU, should, for their non-EU business, as a
minimum identify lending and equity exposures to non-EU counterparties that pertain to sectors
(NACE sectors 4 levels of detail) covered by the Taxonomy. Then, proxies should be used, in
accordance with the proposals included in this section, to determine on a best effort basis the
part of those exposures that are aligned with the Taxonomy, and this information should be
disclosed separately from the EU GAR with appropriate caveats.
3.2 Quantitative disclosures, KPIs and methodology
75. This section of the report explains the KPIs and the quantitative information that institutions
should disclose and the methodology that they should apply for the calculation of KPIs. In
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particular, the section explains the quantitative information on taxonomy-aligned exposures
that credit institutions should disclose, including definitions of relevant KPIs and methodology.
Figure 3: KPIs – quantitative disclosures by credit institutions
3.2.1 Definition of KPIs for taxonomy-aligned exposures (including green asset ratio) and methodology
76. The definition of the GAR and other KPIs may present some differences and peculiarities,
depending on the type of asset and the type of counterparty:
a. For example, availability of data will be more challenging in the case of SMEs
compared to other non-financial corporations that are under the scope of the NFRD
and they will have to start disclosing relevant information from January 2022.
b. In the case of households and retail counterparties, in their responses to the EBA
survey some banks argue that these should be left out of the scope of the
disclosures, because the Taxonomy does not apply to them. However, the EBA is
proposing KPIs for the mortgage portfolio and house renovation loans, based on
the energy performance certificate of the collateral, and for car loans, as both types
of exposures can be assessed according to the Taxonomy Regulation based on the
energy performance of the underlying asset.
KPIs for credit institutions
Main KPI - Green asset ratio (GAR)
Banking book – Loans, debt securities, equity instruments
repossessed collaterals
Financial corporates, NFCs including SMEs, municipalities (house loans) and retail (real
estate and motor vehicle loans)
Banks with non-EU subsidiaries: separate disclosure for non-EU
GAR (on best effort basis)
KPI on trading portfolio
Credit institutions with a relevant trading portfolio
Debt and equity securities
NFRD corporates
KPI on fees and commissions
income
Services other than lending and asset
management
To NFRD corporates
KPIs on off-balance sheet exposures
AuM: securities of NFRD corporates
Financial guarantees –Backing loans to NFRD
corporates
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77. The EBA advice includes the methodology for the computation of the GAR and KPIs depending
on the type of exposure or counterparty, and for the computation of the aggregate GAR that
should show the overall level of alignment of institutions with the Taxonomy.
EBA advice to the Commission
78. Credit institutions’ disclosures will rely to a great extent on the information disclosed by their
counterparties. Regarding the KPI and information to be used from non-financial corporates, the
methodology proposed and explained in the sections below relies mainly on information
relating to the percentage of their turnover generated by taxonomy-complaint activities. The
reason for this proposal is that the volume of turnover includes the income generated by the
non-financial corporate from all activities, including new and old income-generating assets, and
better reflects the status of the business mix of the corporate in terms of sustainability.
79. The EBA has assessed the possibility of basing institutions’ KPIs on other information from their
counterparties, such as Capex. Eventually, the EBA believes that institutions’ investment in
counterparties’ Capex will be shown in cases where they provide special purpose lending for
taxonomy-aligned economic activities (including project finance of Capex investments), and that
for general financing purposes and for fee and commission income from services other than
lending, turnover is the proper basis, as it reflects the overall activity of the counterparty, to
which general lending is linked and should allow for consistency and comparability of definitions
of KPIs.
80. Credit institutions could, on a voluntary basis, and for the green asset ratio, complement the
main disclosure on the overall taxonomy alignment of their activity based on counterparties’
turnover with additional, secondary KPIs estimated using Capex only for general financing, if
they deem it necessary to show their counterparties transitioning or adaptation efforts, but
keeping in mind that this does not mean that they are orienting capital flows to those Capex
investments in this case, as this is general lending and any specific capital flows oriented to
Capex should be reflected in the specialised lending disclosure.
3.2.2 Green asset ratio (GAR)
81. The green asset ratio will show the proportion of the credit institution’s assets invested in
taxonomy-compliant economic activities as a share of total eligible assets (according to the
scope of instruments, counterparties and location of activities defined in section 3.1 of this
document). It is based on the following indicator, included in Annex I, on ‘Further guidance for
banks and insurance companies’, of the Commission non-binding guidelines on reporting of
climate-related information8 (Commission NBG):
Proportion of financial assets financing sustainable economic activities contributing
substantially to climate mitigation and/or adaptation.
8 https://ec.europa.eu/finance/docs/policy/190618-climate-related-information-reporting-guidelines_en.pdf
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82. The GAR will be defined with the scope specified in section 3.1 above, based on the exposures
and balance sheet according to the prudential scope of consolidation, and for the types of assets
and accounting portfolios defined as relevant in the same section 3.1, including information on
stock and flows, on transitional and enabling activities, and on specialised and general purpose
lending. Credit institutions should also disclose forward-looking information and targets for the
proposed KPIs.
83. The combination of information on stock versus flow of loans, and on specialised lending vs
general purpose lending will show the part of banks’ exposures that is financing Capex/Opex of
the counterparty with transitioning/adaptation purposes (i.e. new specialised lending financing
capex taxonomy-aligned projects). Information on general lending will show the part of banks’
exposures financing the overall activity of the counterparty.
84. Credit institutions should disclose the aggregate GAR for total on-balance-sheet eligible assets,
and the breakdown by environmental objective, including climate change mitigation, climate
change adaptation and other environmental objectives, and by type of counterparty. The
definition of the KPIs is built on the following components:
Numerator: Loans and advances/debt securities/equities/repossessed collaterals/total
exposures financing taxonomy-compliant economic activities contributing substantially to,
or enabling, climate change mitigation, climate change adaptation or other environmental
objectives;
Denominator: Total eligible loans and advances/total eligible debt securities/total eligible
equities/total eligible exposures (considering the scope of eligible assets defined in section
3.1).
85. Institutions shall, in addition to the GAR, which provides information on eligible assets (that can
be assessed), disclose the percentage of their total assets that is covered by the GAR.
86. The following sections explain the methodology for computation of the GAR depending on the
type of instrument and counterparty, and at aggregate level.
(i) Green asset ratio for lending activities and equity holdings with non-financial corporates (NFC) subject to NFRD disclosure obligations
87. This section applies to exposures to NFC that are subject to disclosure obligations under the
NFRD.
88. Credit institutions shall disclose the green asset ratio as a point-in-time for the stock of loans,
debt securities and equity holdings, to show the composition of their balance sheets and
alignment with taxonomy-aligned activities, and in terms of flows for new lending, to show how
they are transitioning towards sustainability. The figure below shows the different steps that
institutions have to follow in order to calculate the GAR for this type of corporates for each
environmental objective.
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Figure 4: GAR Loans and advances to NFC subject to NFRD disclosure obligations
Environmental objectives
First step Second step Green asset ratio (GAR)
Climate change mitigation
Proportion of loans and advances/debt securities/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation, compared to total loans/debt securities/equity instruments of NFRD NFC.
Proportion of loans and advances/debt securities/equity instruments financing taxonomy-compliant economic activities for the objective of climate change mitigation, compared to loans and advances/debt securities/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation.
Proportion of loans and advances/debt securities/equity instruments financing taxonomy-compliant economic activities for the objective of climate change mitigation, compared to total loans and advances/debt securities/equity instruments of NFRD NFC.
Of which, enabling activities Of which, transitional activities
Of which, enabling activities Of which, transitional activities
Stock and flow, including targets and forward-looking information
Climate change adaptation
Proportion of loans and advances/debt securities/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change adaptation compared to total loans/debt securities/equity instruments of NFRD NFC.
Proportion of loans and advances/debt securities/equity instruments financing taxonomy-compliant economic activities for the objective of climate change adaptation compared to loans and advances/debt securities/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change adaptation.
Proportion of loans and advances/debt securities/equity instruments financing taxonomy compliant economic activities for the objective of climate change adaptation compared to total loans and advances/debt securities/equity instruments of NFRD NFC.
Of which, enabling activities Of which, adaptation activities
Of which, enabling activities Of which, adaptation activities
Stock and flow, including targets and forward-looking information
Other environmental
activities
The same ratios for each of the other four environmental objectives included in Article 9 of the Taxonomy Regulation,
should be disclosed, once the screening criteria are defined. That is: (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems.
Stock and flow, including targets and forward-looking information
1) Green asset ratio: methodology for loans and advances – Non-financial corporates subject to NFRD disclosure obligations
89. Credit institutions shall use and disclose the following items for the calculation of the GAR for
this type of exposures.
90. (1)(a) Total loans and advances of NFRD NFC. This includes loans and advances to NFC subject
to NFRD disclosure obligations, recognised under the relevant accounting categories as
explained above, i.e. the gross carrying amount of loans and advances at amortised cost and at
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fair value through other comprehensive income, and loans and advances not held for trading at
fair value through profit or loss.
91. (1)(b) Loans and advances to NFC subject to NFRD disclosure obligations financing economic
activities in sectors covered by the Taxonomy for the relevant environmental objective (climate
change mitigation, climate change adaptation, other environmental objectives). This includes
the gross carrying amount of loans and advances in the relevant accounting categories towards
sectors (4 level NACE codes) relevant for each environmental objective according to the
Taxonomy, as specified in the technical annex to the Commission draft Delegated Act on
technical screening criteria for determining the conditions under which an economic activity
qualifies as environmentally sustainable.9
92. (1)(c) Loans and advances to NFC subject to NFRD disclosure obligations financing taxonomy-
compliant economic activities contributing substantially to, or enabling, the relevant
environmental objective (climate change mitigation, climate change adaptation, other
environmental objectives). This includes all loans and advances financing:
a. economic activities that qualify as contributing substantially to climate change
mitigation in accordance with Article 10 of the Taxonomy Regulation, including
transitional activities, or to climate change adaptation in accordance with Article
11 of the Taxonomy Regulation, or to any of the other four environmental
objectives, in accordance with Articles 12 to 15 of the Taxonomy Regulation;
b. or enabling activities in accordance with Article 16 of the Taxonomy Regulation;
c. and meeting the criteria specified in Article 3 of the same regulation.
93. Calculation of this amount:
a. (1)(c)(1) For loans and advances where the use of proceeds is known, such as
specialised lending - project finance loans as defined in FINREP ANNEX V:
Credit institutions shall consider the gross carrying amount of the project
finance exposures to NFC subject to NFRD disclosure obligations, to the extent
and proportion that the project funded qualifies as contributing substantially
to climate change mitigation, adaptation or other environmental objectives in
accordance with Articles 10 to 15 of the Taxonomy Regulation, or as enabling
activity in accordance with Article 16, and meet the criteria specified in Article
3 of the same Regulation. The assessment shall be based on information
provided by the counterparty on the project or activities to which the proceeds
will be applied. Institutions should provide transparency on the kind of
economic activity that is being funded. Double counting in not allowed, if the
9 https://ec.europa.eu/info/law/sustainable-finance-taxonomy-regulation-eu-2020-852/amending-and-supplementary-acts/implementing-and-delegated-acts_en
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same specialised lending exposure can be relevant for two environmental
objectives, the institution shall allocate it to the most relevant.
b. (1)(c)(2) For loans and advances to NFC subject to NFRD disclosure obligations,
where the use of proceeds is unknown (general loans):
Credit institutions shall rely on the information that the counterparty will have
to disclose in accordance with Article 8 of the Taxonomy Regulation. In
particular, on the information on the proportion of their turnover deriving from
products or services associated with economic activities that qualify as
environmentally sustainable under Article 3 of the Taxonomy Regulation for
each environmental objective included in Article 9 (% Turnover CCM; %
Turnover CCA; % Turnover from each environmental objective included in
points (c)to (f) of Article 9).
The amount of loans and advances to NFC subject to NFRD disclosure
obligations to be considered shall be: the sum of the gross carrying amount of
the total loans and advances with unknown use of proceeds to NFC subject to
NFRD disclosure obligations, weighted by the proportion of taxonomy-aligned
activities (with a breakdown for transitioning and enabling activities) for each
counterparty (i.e. % Turnover of the counterparty aligned with the Taxonomy
and contributing to or enabling the relevant environmental objective).
c. (1)(c) ‘Loans and advances to NFC other than SMEs financing taxonomy-compliant
economic activities contributing substantially to, or enabling, the relevant
environmental objective’ = (1)(c)(1) + (1)(c)(2)
94. Institutions shall calculate the KPIs proposed in Figure 3 according to the following formulas for
these types of exposures.
95. First step = (1)(b)/(1)(a) (as developed in paragraphs 91 and 90 above respectively).
96. Second step = (1)(c)/(1)(b) (as developed in paragraphs 92 and 91 above, respectively).
Institutions shall disclose the part of the KPI that refers to enabling activities separately, when
relevant.
97. GAR L&A (for each environmental objective) = (1)(c)/(1)(a) (as developed in paragraphs 92 and
90 above, respectively). Institutions shall disclose the part of the KPI that refers to enabling
activities separately, when relevant.
98. The KPIs will be disclosed in terms of:
a. Stock – based on the total gross carrying amount of loans and advances as of the
disclosure reference date.
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b. Flow – based on the gross carrying amount of new loans and advances during the
year prior to the disclosure reference date.
c. With a separate breakdown for enabling and transitional/adaptation activities, and
for specialised lending.
99. Credit institutions should, in addition to actual information on the values of the KPIs, disclose
forward-looking information based on scenario analysis and their business strategies, and
information on short-, medium- and long-term targets.
2) Green asset ratio for debt securities – Non-financial corporates subject to NFRD disclosure obligations
100. Credit institutions shall calculate and disclose the following items for the calculation of the
GAR for this type of exposure.
101. (2)(a) Total debt securities of NFC subject to NFRD disclosure obligations – Debt securities
related to NFC subject to NFRD disclosure obligations that are recognised under the relevant
accounting categories. This includes the gross carrying amount of debt securities at amortised
cost and at fair value through other comprehensive income, and debt securities not held for
trading at fair value through profit or loss.
102. (2)(b) Debt securities of NFC subject to NFRD disclosure obligations financing economic
activities in sectors covered by the Taxonomy for the relevant environmental objective (climate
change mitigation, climate change adaptation, other environmental objectives). This includes
the gross carrying amount of debt securities in the relevant accounting categories in relation to
the relevant sectors (4 level NACE codes) for each environmental objective according to the
Taxonomy, as specified in the technical annex to the Commission Delegated Act on technical
screening criteria for determining the conditions under which an economic activity qualifies as
environmentally sustainable.
103. (2)(c) Debt securities of NFC subject to NFRD disclosure obligations financing taxonomy-
compliant economic activities contributing substantially to, or enabling, the relevant
environmental objective (climate change mitigation, climate change adaptation, other
environmental objectives). This includes all debt securities financing:
a. economic activities that qualify as contributing substantially to climate change
mitigation in accordance with Article 10 of the Taxonomy Regulation, including
transitional activities, or to climate change adaptation in accordance with Article
11 of the Taxonomy Regulation, or to any of the other four environmental
objectives, in accordance with Articles 12 to 15 of the Taxonomy Regulation;
b. or enabling activities in accordance with Article 16 of the Taxonomy Regulation;
c. and meeting the criteria specified in Article 3 of the same regulation.
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104. Calculation of this amount:
a. (2)(c)(1) For debt securities where the use of proceeds is known, credit institutions
shall consider the sum of the following amounts:
i. (2)(c)(1)(a) Green bonds: Credit institutions shall consider the total gross
carrying amount of exposures to green bonds issued in accordance with
any future EU green bond standard. Current bond issuances qualified as
‘green bonds’ by the issuer whose use of proceeds have to be invested in
taxonomy-eligible activities shall be assessed depending on the level of
alignment with the Taxonomy regulation of the activities or projects
funded, based on ad hoc information provided by the issuer for the
issuance. Institutions should provide transparency on the kind of economic
activity that is being funded. Double counting in not allowed: if the same
green bond is eligible for two environmental objectives, institutions shall
allocate it to the most relevant.
ii. (2)(c)(1)(b) Credit institutions shall consider the gross carrying amount of
debt securities invested in project finance exposures, to the extent
(percentage) that the project funded qualifies as contributing substantially
to climate change mitigation, adaptation or other environmental
objectives in accordance with Articles 10 to 15 of the Taxonomy
Regulation, or as enabling activity in accordance with Article 16, and meets
the criteria specified in Article 3 of the same regulation. The assessment
shall be based on ad hoc information provided by the issuer for that
issuance. Double counting in not allowed: if the same specialised lending
exposure is eligible for two environmental objectives, institutions shall
allocate it to the most relevant. Institutions should provide transparency
on the kind of economic activity that is being funded.
b. (2)(c)(2) For debt securities of NFC subject to NFRD disclosure obligations, where
the use of proceeds is unknown:
i. Credit institutions shall rely on the information that the counterparty will
have to disclose in accordance with Article 8 of the Taxonomy Regulation.
In particular, on the information on the proportion of their turnover
deriving from products or services associated with economic activities that
qualify as environmentally sustainable under Articles 3 of the Taxonomy
Regulation for each environmental objective included in Article 9 (%
Turnover CCM; % Turnover CCA; % turnover from each environmental
objectives included in points (c)to (f) of Article 9).
ii. The amount of debt securities of NFC subject to NFRD disclosure
obligations to be considered shall be: the sum of the gross carrying amount
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32
of the total debt securities with unknown use of proceeds to NFC subject
to NFRD disclosure obligations, weighted by the proportion of taxonomy-
aligned activities (with a breakdown of transitional and enabling activities)
for each counterparty (i.e. % Turnover of the counterparty aligned with the
Taxonomy and contributing to or enabling the relevant environmental
objective).
c. (2)(c) Debt securities of NFC subject to NFRD disclosure obligations financing
taxonomy-compliant economic activities contributing substantially to, or enabling,
the relevant environmental objective (climate change mitigation, climate change
adaptation, other environmental objectives) = (2)(c)(1) + (2)(c)(2).
105. Institutions shall calculate the KPIs proposed according to the following formulas for these
types of exposures:
106. First step = (2)(b)/(2)(a).
107. Second step = (2)(c)/(2)(b); Institutions shall disclose the part of the KPI that refers to
enabling activities separately, when relevant.
108. GAR DS = (2)(c)/(2)(a).
109. The KPIs will be disclosed in terms of:
a. Stock – based on the total gross carrying amount of debt securities as of the
disclosure reference date.
b. Flow – based on the gross carrying amount of new debt securities during the year
prior to the disclosure reference date.
c. With a separate breakdown for enabling and transitional activities, and for
specialised lending.
3) Green asset ratio for equity holdings – Non-financial corporates subject to NFRD disclosure obligations
110. Credit institutions shall calculate and disclose the following items for the calculation of the
GAR for these types of exposures.
111. Proportion of equity holdings of NFC subject to NFRD disclosure obligations financing
economic activities in sectors covered by the Taxonomy for the objective of climate change
mitigation/adaptation/other, compared to total equity holdings of NFC subject to NFRD
disclosure obligations.
a. The numerator will include the gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income,
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33
financial assets not held for trading at fair value through profit or loss and
investments in subsidiaries, joint ventures and associates) in sectors covered by the
Taxonomy;
b. The denominator will be the total gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income,
financial assets not held for trading at fair value through profit or loss and
investments in subsidiaries, joint ventures and associates).
112. Proportion of equity holdings of NFC subject to NFRD disclosure obligations financing
taxonomy-compliant economic activities contributing substantially to, or enabling, climate
change mitigation/adaptation/other objectives, compared to equity holdings of NFC subject
to NFRD disclosure obligations in sectors covered by the Taxonomy for the objective of climate
change mitigation/adaptation/other.
a. The numerator will include the gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income,
financial assets not held for trading at fair value through profit or loss, and
investments in subsidiaries, joint ventures and associates) aligned with the
Taxonomy, based on the percentage of turnover of the NFC to which the equity
instruments belongs that is aligned with the Taxonomy contributing to, or enabling
the objectives of climate change mitigation/adaptation/other;
b. The denominator will include the gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income
and financial assets not held for trading at fair value through profit or loss) in
sectors covered by the Taxonomy.
113. GAR EH = Proportion of equity holdings of NFC subject to NFRD disclosure obligations
financing taxonomy-compliant economic activities contributing substantially to, or enabling,
climate change mitigation/adaptation/other environmental objectives, compared to total
equity holdings of NFC subject to NFRD disclosure obligations.
a. The numerator will include the gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income,
financial assets not held for trading at fair value through profit or loss, and
investments in subsidiaries, joint ventures and associates) aligned with the
Taxonomy, based on the percentage of turnover of the NFC to which the equity
instruments belongs aligned with the Taxonomy contributing to, or enabling the
objectives of climate change mitigation/adaptation/other;
b. The denominator will be the total gross carrying amount of the equity holdings not
held for trading (financial assets at fair value through other comprehensive income,
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
34
financial assets not held for trading at fair value through profit or loss and
investments in subsidiaries, joint ventures and associates).
114. The ratios shall be disclosed in terms of:
a. Stock – based on the total gross carrying amount of equity holdings as of the
disclosure reference date.
b. Flow – based on the gross carrying amount of equity holdings during the year prior
to the disclosure reference date.
c. With a separate breakdown for enabling and transitional activities.
4) GAR on total financing to NFC subject to NFRD disclosure obligations (lending plus equity holdings)
Figure 5: GAR total financing extended to NFC subject to NFRD disclosure obligations
Environmental
objectives First intermediate KPI Second intermediate KPI Green asset ratio (GAR)
Climate change
mitigation
Proportion of debt and equity
instruments financing economic
activities in sectors covered by the
Taxonomy for the objective of climate
change mitigation, compared to total
debt and equity instruments.
Proportion of debt and equity
instruments financing taxonomy-
compliant economic activities for the
objective of climate change mitigation,
compared to debt and equity
instruments financing economic
activities in sectors covered by the
Taxonomy for the objective of climate
change mitigation.
Proportion of debt and equity
instruments financing taxonomy-
compliant economic activities for the
objective of climate change
mitigation, compared to total debt
and equity instruments.
Of which, enabling activities
Of which, transitional activities Of which, enabling activities
Of which, transitional activities
Stock and flow, including targets and forward-looking information
Climate change
adaptation
Proportion of debt and equity
instruments financing economic
activities in sectors covered by the
Taxonomy for the objective of climate
change adaptation compared to total
debt and equity instruments.
Proportion of debt and equity
instruments financing taxonomy-
compliant economic activities for the
objective of climate change adaptation
compared to debt and equity
instruments financing economic
activities in sectors covered by the
Taxonomy for the objective of climate
change adaptation.
Proportion of debt and equity
instruments financing taxonomy-
compliant economic activities for the
objective of climate change
adaptation compared to total debt
and equity instruments.
Of which, enabling activities
Of which, adaptation activities Of which, enabling activities
Of which, adaptation activities
Stock and flow, including targets and forward-looking information
The same ratios for each of the other four environmental objectives included in Article 9 of the Taxonomy Regulation should
be disclosed once the screening criteria have been defined. That is: (c) the sustainable use and protection of water and
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Environmental
objectives First intermediate KPI Second intermediate KPI Green asset ratio (GAR)
Other
environmental
activities
marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and
restoration of biodiversity and ecosystems
Stock and flow, including targets and forward-looking information
TOTAL ALL
Environmental
objectives
Sum of the numerators and denominators of all environmental objectives to obtain the aggregate ratio for all exposures to
NFC subject to NFRD disclosure obligations
Stock and flow, including targets and forward-looking information
115. The three ratios that are proposed for each environmental objective should be disclosed at
an aggregate level for all financing of on-balance-sheet instruments related to NFC subject to
NFRD disclosure obligations, including equity holdings.
116. The numerator and denominator of the ratios will include the gross carrying amount of
loans and advances, debt securities and equity holdings relevant to each case.
(ii) Green asset ratio for lending activities, equity holdings of financial corporates
117. The ESG impact of credit institutions and other financial corporations is mostly indirect,
through their exposures to other counterparties. Therefore, credit institutions’ exposures to
other financial corporates may have an indirect impact on environmental objectives through
exposures that will also have an indirect impact on those objectives, which makes it less evident
to trace the impact of these exposures. Further, given the relevance in banks’ balance sheets of
exposures to other credit institutions and other financial corporations, their final impact on
environmental objectives can be meaningful and should be considered. In addition, those
financial corporates that are subject to disclosure obligations under the NFRD will have to
disclose their alignment with the Taxonomy under Article 8, and therefore credit institutions
should be able to assess these assets and exposure based on the counterparties’ alignments
with the Taxonomy.
118. Taking into account the accounting categories considered under the scope of Article 8
disclosures, as specified above, interbank (on demand) exposures are excluded from the
calculation of the KPIs. Given the very short term nature of these exposures, they cannot
contribute to achieving the Taxonomy’s environmental objectives and it would be extremely
challenging and burdensome for banks to assess them. It is therefore justified that interbank
exposures be excluded from the computation of the KPIs.
Figure 6: GAR Loans and advances, debt securities and equity holdings of financial corporates
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Environmental objectives
Green asset ratio (GAR)
Climate change mitigation
Proportion of loans and advances, debt securities and equity holdings financing taxonomy-compliant economic activities for the objective of climate change mitigation, compared to total loans and advances, debt securities and equity holdings
Of which, enabling activities Of which, transitional activities
Climate change adaptation
Proportion of loans and advances, debt securities and equity holdings financing taxonomy-compliant economic activities for the objective of climate change adaptation compared to total loans and advances, debt securities and equity holdings
Of which, enabling activities Of which, adaptation activities
Stock and flow, including targets and forward-looking information
Other environmental
activities
The same ratios for each of the other four environmental objectives included in Article 9 of the Taxonomy Regulation,
should be disclosed, once the screening criteria have been defined. That is: (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems.
Stock and flow, including targets and forward-looking information
119. The numerator of the GAR for financial corporates should be always calculated based on
the counterparties’ Article 8 disclosures. The amount of loans and advances, debt securities and
equity holdings of financial corporates to be considered in the numerator of the ratio shall be
the sum of their gross carrying amount, weighted by the proportion of taxonomy-aligned
activities (with a breakdown for transitioning/adaptation and enabling activities) for each
counterparty. The KPI to be considered will depend on the type of counterparty:
a. Exposures to other credit institutions: the gross carrying amount of debt securities,
loans and advances and equity holdings shall be weighted by the ‘Total GAR’ of the
counterparty as defined below, and by the ‘percentage of total assets of the
counterparty covered by the total GAR’:
i. Gross carrying amount multiplied by ‘Total GAR’ of the counterparty,
multiplied by ‘% of total assets covered by Total GAR’
b. Exposures to investment firms:
i. Investment firms whose main business is dealing on own account as per
Section A of Annex I of Directive 2016/65/EU: The gross carrying amount
of debt securities, loans and advances and equity holdings shall be
weighted by the GAR disclosed by the investment firms:
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1. Gross carrying amount multiplied by ‘the value of assets invested
(debt securities, equity instruments, cash equivalents and
derivatives) in taxonomy-aligned economic activities as a share of
the value of total assets invested’.
ii. Investment firms whose main business is investment services and activities
other than dealing on own account, as per Section A of Annex of Directive
2014/65/EU: The gross carrying amount of debt securities, loans and
advances and equity holdings shall be weighted by the KPI for revenues
(i.e. fees, commissions and other monetary benefits) disclosed by the
investment firms:
1. Gross carrying amount multiplied by ‘fees, commissions and other
monetary benefits from services and activities to taxonomy-
aligned economic activities as a share of total fees, commissions
and other monetary benefits from all services and activities’.
c. Exposures to asset managers: the gross carrying amount of debt securities, loans
and advances and equity holdings shall be weighted by the ratio of the
counterparty eligible investments that are taxonomy-aligned, as defined in ESMA’s
advice to the Commission on disclosures under Article 8 of the Taxonomy
Regulation:
i. Gross carrying amount multiplied by the asset manager’s ratio of eligible
investments.
d. Exposures to insurance companies: the gross carrying amount of debt securities,
loans and advances and equity holdings shall be weighted by the proportion of total
assets of the counterparty invested in taxonomy-compliant economic activities,
and, where relevant, by the premium ratio, as defined in EIOPA’s advice to the
Commission on disclosures under Article 8 of the Taxonomy Regulation:
i. Gross carrying amount multiplied by the insurance company’s proportion
of total assets of the counterparty invested in taxonomy-compliant
economic activities and, where relevant, by the insurance company’s
premium income from taxonomy-compliant economic activities.
120. The denominator will be the total gross carrying amount of loans and advances, debt
securities and equity holdings of financial corporates.
(iii) Green asset ratio for retail exposures
Figure 7: GAR retail exposures
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Type of exposure
Environmental objective Green asset ratio (GAR)
Residential real estate/House renovation
loans
Climate change mitigation
Proportion of loans to households collateralised by residential immovable property or granted for house renovation purposes aligned with the Taxonomy, compared to total loans to households collateralised by residential immovable property or granted for house renovation purposes.
Stock and flow, including targets and forward-looking information
Transitional activities
Credit consumption loans – Car loans
Climate change mitigation
KPI based on the EPC of the car and the CO2 emissions
Stock of loans (only for loans granted after the date of application) and flow of loans, including targets and
forward-looking information
Transitional activities
1) Residential real estate lending
121. The European Commission sees10 the building sector as crucial for achieving the EU's energy
and environmental goals. According to the Commission, buildings are responsible for
approximately 40% of EU energy consumption and 36% of the greenhouse gas emissions.
Buildings are therefore the single largest source of energy consumption in Europe. At present,
about 35% of the buildings in the EU are over 50 years old and almost 75% of the building stock
is energy inefficient. At the same time, only about 1% of the building stock is renovated each
year. Finally, according to the same sources, renovation of existing buildings can lead to
significant energy savings, as it could reduce the EU’s total energy consumption by 5-6% and
lower CO2 emissions by about 5%.
122. Given the relevance of retail lending for the EU banking sector, and in particular of the
mortgage retail lending portfolio, EU banks can indeed have an impact on the environment
through their lending to households, depending on the type of assets that they are financing.
This is particularly the case of mortgages and real estate assets, depending for example on their
distribution in terms of energy efficiency. In addition, environmental risks can have an impact
on the value of the collaterals backing the mortgage portfolio, both in terms of transition and
physical risks, and on the loss-given-default of the loans. For these reasons, the EBA considers
that credit institutions’ ESG disclosures should cover the retail lending portfolio, in particular the
mortgage lending portfolio.
10 https://ec.europa.eu/energy/topics/energy-efficiency/energy-efficient-buildings/energy-performance-buildings-directive_en
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123. The retail lending portfolio is composed largely of loans for house purchases collateralised
by residential immovable property and credit for consumption loans.
124. To boost the energy performance of buildings, the EU has established a legislative
framework that includes the Energy Performance of Buildings Directive 2010/31/EU (EPBD)11
and the Energy Efficiency Directive 2012/27/EU.12 Together, the directives promote policies that
should help to achieve a highly energy efficient and decarbonised building stock by 2050.
125. The EPBD introduced the Energy Performance Certificate (EPC) as an instrument that
should help improve the energy performance of buildings. It is defined as a certificate recognised
by a Member State or by a legal person designated by it, which indicates the energy performance
of a building or building unit, calculated according to a methodology adopted in accordance with
the EPBD. In addition, according to the EPBD, all new buildings must be nearly zero-energy
buildings (NZEB) from 31 December 2020. NZEB have a very high energy performance. The low
amount of energy that these buildings require would come mostly from renewable sources.
126. EPCs provide information for consumers on buildings they plan to purchase or rent. They
include an energy performance rating and recommendations for cost-effective improvements.
Certificates must be included in all advertisements in commercial media when a building is put
up for sale or rent. They must also be shown to prospective tenants or buyers when a building
is being constructed, sold, or rented. After a deal has been concluded, they are handed over to
the buyer or new tenant.
127. This means that from the date that EPCs became mandatory in accordance with the EPBD
and its transposition in each member state, buyers of a building must have an EPC indicating the
energy performance of the building. This includes households that buy a house.
128. In all countries there are registries for the EPCs issued, kept by the competent
organisations/authorities. These data are publicly available in some countries but not in all.
Making the data publicly available in all EU countries would facilitate the updating of EPC ratings
by institutions for all mortgage loans for which there is an EPC for the collateral. Coordinated
efforts at EU level in this direction would facilitate banks’ risk management and disclosures.
129. The Commission’s draft delegated act supplementing the Taxonomy Regulation specifies
the screening criteria for the ‘Building acquisition and ownership’ activity. This activity relates
to NACE code L68 Real estate activities. The Annex to the draft delegated act specifies different
screening criteria for the acquisition of buildings built on or before 31 December 2020 and for
acquisition of buildings built after 31 December 2020.
130. Buildings built before 31 December 2020 should have at least an EPC class A, in order to be
aligned with the Taxonomy, according to the taxonomy screening criteria.
11 https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:153:0013:0035:en:PDF 12 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32012L0027
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131. For transactions on buildings built after 31 December 2020, in accordance with the
taxonomy screening criteria, the Primary Energy Demand (PED), defining the energy
performance of the building resulting from the construction, should be at least 20% lower than
the threshold set for the nearly zero energy building (NZEB) requirements in national measures
implementing Directive 2010/31/EU of the European Parliament and of the Council. The energy
performance is certified based on the EPC.
132. Credit institutions should be able to classify their mortgage loans to households in
accordance with their EPC rating. This should be possible for all new loans to households granted
to purchase a house, and in regard to the stock of loans, for mortgage loans granted from the
date on which the EPC rating information became mandatory.
133. The Commission’s draft delegated act supplementing the Taxonomy Regulation also
specifies criteria for the ‘Renovation of existing buildings’ activity. In this case, for the activity to
be considered as sustainable, the renovation should lead to a 30% improvement in the energy
efficiency of the building.
134. The following KPI is proposed as the GAR for the disclosure by institutions of the level of
alignment of their residential real estate lending portfolio with the Taxonomy, for the
environmental objective of climate change mitigation.
135. Proportion of loans to households collateralised by residential immovable property
aligned with the Taxonomy, contributing to the environmental objective of climate change
mitigation, compared to total loans to households collateralised by residential immovable
property.
a. The numerator of the ratio will include the gross carrying amount of residential real
estate loans aligned with the Taxonomy.
i. This will include loans granted to acquire buildings built before 31
December 2020 whose collateral meets the screening criteria specified by
the Commission in the annex to the Taxonomy delegated act for
‘Acquisition and ownership of buildings’ activity for substantial
contribution to climate change mitigation, based on the EPC of the
building.
ii. In addition to loans granted to acquire buildings built after 31 December
2020 whose collateral meets the screening criteria specified by the
Commission in the annex to the Taxonomy delegated act for the
‘Acquisition and ownership of buildings’ activity for substantial
contribution to climate change mitigation, based on the EPC of the building
(primary energy demand according to the EPC rating at least 20% lower
than the primary energy demand resulting from the relevant NZEB
requirements).
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b. The denominator will include the total gross carrying amount of loans to
households collateralised by residential immovable property.
136. Credit institutions should disclose (point-in-time) information for the stock of loans as of
the disclosure reference date, and information on (the flows of) new lending during the
disclosure period. They should also disclose forward-looking information and information on
targets.
137. In the numerator of the ratio, credit institutions should also consider loans granted for
the renovation of a building or of a house where it leads to a reduction in Primary Energy
Demand of at least 30% in comparison to the energy performance of the building before the
renovation (based on the criteria proposed in the annex to the Taxonomy delegated act, for the
‘Renovation of existing buildings’ criteria’). When including these loans, credit institutions
should avoid double counting of loans (taking into account the same loan as a building
renovation loan and as a loan for the acquisition of buildings). In the event that these are not
collateralised loans, they should add to the denominator the gross carrying amount of all
uncollateralised loans granted for the purpose of building renovation.
138. The EBA acknowledges that it is difficult for banks to assess the compliance of loans granted
for house purchases with the ‘do no significant harm' (DNSH) criteria, as required by the
Taxonomy. The EBA also understands that the regulation for new buildings in the EU should
include requirements ensuring a level of respect with the environment and ecosystems that is
largely aligned with DNSH criteria. Taking into account these premises, the EBA still considers
that the KPI proposed is the most relevant proxy of the GAR for the residential real estate
portfolio and to show its level of alignment with the Taxonomy, even if it is not possible to assess
the DNSH criteria for each exposure.
139. The EBA also acknowledges the challenges relating to data availability and comparability.
Challenges include:
a. The availability of data on the EPCs for the stock of loans, and the need to have a
phase-in period for banks to collect this data on the stock of residential mortgages.
In this regard, the EBA would encourage the Commission to support central publicly
available databases on EPCs for the stock of buildings.
b. Comparability of EPC labels across countries, as labels are not yet subject to the
same methodologies. To address this point, banks should disclose clear information
on the meaning of each label in terms of energy efficiency and consumption in the
EU jurisdictions where they operate.
c. Credit institutions will have to rely on EPCs to certify the improvement of the
building in terms of energy efficiency for house renovation loans. EPCs are not
currently mandatory for house renovations. The EBA would support the extension
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of the mandatory character of the EPC not only to cases of acquisition/rental of
buildings, but also in cases of house renovation.
140. The EBA proposes to define a phase-in period in line with the transitional period envisaged
in the EBA Guidelines on Loan Origination and Monitoring13 for the collection on a bilateral basis
of information relevant for the loan monitoring process. According to the GL, where institutions
do not have all the relevant information and data to be used for the monitoring of existing
borrowers or credit facilities granted before the application date, they should collect the missing
information and data by 30 June 2024 (i.e. a phase-in period of three years following the
application date of the GL in June 2021), through regular credit reviews of borrowers.
141. A transition period until June 2024 is proposed for the disclosure of information on the
stock of residential real estate loans. For new lending, banks should start requesting the relevant
information in the loan origination process and no transition period is proposed.
142. During the transitional period, institutions should apply proxies for the calculation and
disclosure of the GAR for residential real estate lending. Proxies could be based on the
application of taxonomy-aligned coefficients by NACE sector, estimated by an independent EU
body14.
2) Retail - Credits for consumption
143. The EBA acknowledges that there is a wide heterogeneity of loans in terms of purpose of
the loan under this portfolio, for which there is no methodology or supporting evidence that
would allow the bank to determine whether they are or are not related to taxonomy-aligned
activities.
144. Further, a large part of these loans are granted to households for the acquisition of motor
vehicles (car loans). A KPI is proposed for new car loans, defined on the basis of the vehicle’s
energy performance certificate. For the purpose of identifying exposures that are aligned with
the Taxonomy, the institution should apply the criteria defined in the Commission’s draft
delegated act for the activity ‘Transport by motorbikes, passenger cars and light commercial
vehicles’, and that define as complying with the Taxonomy those cases where the vehicle has
specific CO2 emissions below 50gCO2/km – threshold applicable until 13 December 2025 – or
zero emissions (from 1 January 2026).
145. Institutions shall consider those ‘car loans’ granted from the date of application of the
disclosure requirements, both for the KPI for stock and for new loans. Given the short-term
nature of these loans, an update of the stock of loans granted before the application date shall
not be considered.
13 https://www.eba.europa.eu/regulation-and-policy/credit-risk/guidelines-on-loan-origination-and-monitoring 14 Like the JRC-UZH_Taxonomy-alignment_tool for the objective of climate change mitigation.
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3) Retail – other considerations
146. The EBA proposal includes KPIs for exposures to financing activities aligned with the
Taxonomy only for the objective of climate change mitigation, as the EBA has not found relevant
criteria or supportive information similar to the energy performance certificate that could be
used to propose a similar KPI for the objective of climate change adaptation.
147. The EBA has considered the possibility of adding to retail KPIs the loans granted for the
renovation of buildings for the implementation of physical and non-physical solutions
(‘adaptation solutions’) for the reduction of physical climate risks. Further, the technical criteria
proposed by the Commission’s Taxonomy delegated act for this activity15, seem too difficult to
assess for retail counterparties and there is no supporting document similar to the EPC to help
institutions understand whether or not the criteria have been met.
148. Given the challenges in identifying these exposures, the EBA proposes to leave these
types of loans out of the scope of the GAR at this stage.
(iv) GAR for exposures to NFC not subject to NFRD disclosure obligations (including small- and medium-sized enterprises – SMEs)
Figure 8: GAR for exposures to NFC not subject to NFRD disclosure obligations (including small and medium-sized enterprises – SMEs (including other NFC not subject to NFRD disclosure obligations)
Environmental objectives
Type of exposure First intermediate KPI Second intermediate KPI Green asset ratio (GAR)
Climate change mitigation
Loans and advances to non-NFRD NFC collateralised by immovable commercial property/building renovation loans.
Proportion of loans and advances collateralised by residential immovable property plus building renovation loans aligned with the Taxonomy, compared to total loans to non-NFRD NFC collateralised by residential immovable property
Stock and flow, including targets and forward-looking information
15 1. Renovation of existing buildings. Substantial contribution to climate change adaptation: The economic activity has implemented physical and non-physical solutions (‘adaptation solutions’) that reduce the most important physical climate risks that are material to that activity. The physical climate risks that are material to the activity have been identified from those listed in Appendix A to this Annex by performing a robust climate risk and vulnerability assessment. The assessment is proportionate to the scale of the activity and its expected lifespan, such that:
2. (a) for investments in adaptation solutions activities with an expected lifespan of less than 10 years, the assessment is performed, at least, by using downscaling of climate projections;
3. (b) for all other activities, the assessment is performed using high resolution, state-of-the-art climate projections across a range of future scenarios consistent with the expected lifetime of the activity, including, at least, 10 to 30 years climate projections scenarios for major investments.
4. The climate projections and assessment of impacts are based on best practice and available guidance and take into account the open source models, the best available science for vulnerability and risk analysis and related methodologies in accordance with the most recent Intergovernmental Panel on Climate Change reports and scientific peer-reviewed publications.
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Environmental objectives
Type of exposure First intermediate KPI Second intermediate KPI Green asset ratio (GAR)
Climate change
mitigation
Debt securities and other loans and advances and equity instruments of non-NFRD NFC.
Proportion of debt securities/other loans and advances/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation, compared to total debt securities/other loans and advances/equity instruments-
Proportion of debt securities/other loans and advances/equity instruments financing taxonomy-compliant economic activities for the objective climate change mitigation, compared to debt securities/other loans and advances/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation.
Proportion of debt securities/other loans and advances/equity instruments financing taxonomy-compliant economic activities for the objective of climate change mitigation, compared to total debt securities/other loans and advances/equity instruments.
Of which, enabling activities Of which, transitional activities
Of which, enabling activities Of which, transitional activities
Stock and flow KPI, including targets and forward-looking information
Climate change
adaptation
Debt securities and other loans and advances and equity instruments of non-NFRD NFC.
Proportion of debt securities/other loans and advances/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change adaptation, compared to total debt securities/other loans and advances/equity instruments.
Proportion of debt securities/other loans and advances/equity instruments financing taxonomy-compliant economic activities for the objective of climate change adaptation, compared to debt securities/other loans and advances/equity instruments financing economic activities in sectors covered by the Taxonomy for the objective of climate change adaptation.
Proportion of debt securities/other loans and advances/Equity instruments financing taxonomy-compliant economic activities for the objective of climate change adaptation compared to total debt securities/other loans and advances/equity instruments.
Of which, enabling activities Of which, adaptation activities
Of which, enabling activities Of which, adaptation activities
Stock and flow, including targets and forward-looking information
Other environmental
activities
Debt securities and other loans and advances and equity instruments of non-NFRD NFC.
The same ratios for each of the other four environmental objectives included in Article 9 of the
Taxonomy Regulation, once the screening criteria have been defined. That is: (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems.
Stock and flow, including targets and forward-looking information
149. The challenges in terms of availability of data from credit institutions’ counterparties is
particularly crucial in the case of SMEs. The consultation on the non-financial reporting directive
published by the Commission in 2020 included questions on the possibility of extending the
scope of application of the NFRD to SMEs based on simplified and maybe even voluntary
disclosure requirements, an extension that would be very much supported by the EBA. If this is
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eventually the case, a simplified disclosure framework for SMEs may address the issue of
availability of data. In the meantime, the EBA proposes the following approach:
150. For loans and advances to SMEs collateralised by immovable commercial property or
extended for building renovations, the same KPI and methodology defined for the GAR for
residential real estate lending, and for the objective of climate change mitigation, based on the
EPC, should apply:
151. Proportion of loans to SMEs collateralised by commercial immovable property, and
house renovation loans, aligned with the Taxonomy, compared to total loans to SMEs
collateralised by commercial immovable property.
a. The methodology for the computation of the numerator and denominator would
be the same as the methodology proposed for residential real estate lending. The
proposals in terms of the transitional period, and proxies to be applied during the
transitional period, are also the same.
152. For debt securities, other loans and advances to SMEs and equity instruments, credit
institutions should classify their exposures by sector (NACE code 4 levels) and identify the
exposures to sectors covered by the Taxonomy regulation. For the calculation of the percentage
of taxonomy-aligned exposures, credit institutions should, on a best effort basis, collect
information from their counterparties, on a bilateral basis, through the regular credit review and
monitoring of borrowers. Only if the SME is not able to provide the relevant data, credit
institutions should make use of coefficients and proxies that independent EU bodies may
provide16. Credit institutions could then estimate and disclose the GAR, in a similar way to those
defined for NFCs subject to NFRD disclosure obligations. Each debt security or loan can only be
considered once, and can contribute to only one environmental objective. If there are loans that
could be eligible for more than one environmental objective, the institution shall allocate it to
the most relevant one.
153. It is worth noting the case of corporates with between 250 and 500 employees. These
corporates do not fall under the definition of SMEs but are not within the scope of application
of the NFRD either and therefore will not be required to disclose information in accordance with
Article 8 of the Taxonomy Regulation. One of the proposals in the NFRD consultation is to extend
the scope of application of the NFRD at least to corporates with between 250 and 500 staff; the
EBA would strongly support the extension of the scope of application of the NFRD. If this is
eventually the case, then these corporates will have to disclose meaningful information and
should be treated as any other corporate with disclosure requirements under the NFRD and
apply the methodology advised for those cases. Meanwhile, the EBA’s advice is to cover the
16 Like the JRC-UZH taxonomy alignment coefficients by NACE sector for the objective of climate change mitigation - JRC-UZH_Taxonomy-alignment_tool
Alessi, L., Battiston, S., Melo, A. S., & Roncoroni, A. (2019). The EU Sustainability Taxonomy: a financial impact assessment. JRC Technical Reports. https://doi.org/10.2760/347810.
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disclosure of exposures to these corporates that are not SMEs but are not subject to disclosure
obligations under the NFRD using the same approach as for SMEs.
154. For disclosures involving corporates not subject to NFRD disclosure obligations, including
SMEs, when assessing general purpose lending/financing with unknown use of proceeds, credit
institutions and their counterparties may focus their assessment on the main economic activity
of the corporate, that is, on their main source of turnover, in order to determine the overall
alignment of the corporate with the Taxonomy Regulation.
155. Given the challenges linked to the fact that these counterparties are not subject to NFRD
disclosure obligations, the EBA proposes a phase-in period similar to that for retail exposures
and in line with the transitional period envisaged in the EBA Guidelines on Loan Origination and
Monitoring for the collection on a bilateral basis of information relevant for the loan monitoring
process. According to the GL, where institutions do not have all the relevant information and
data to be used for the monitoring of existing borrowers or credit facilities granted before the
application date, they should collect missing information and data by 30 June 2024 (i.e. a phase-
in period of three years following the application date of the GL in June 2021), through regular
credit reviews of borrowers.
156. A transition period until June 2024 is proposed for the disclosure of information on the
stock of exposures to SMEs and other NFC not subject to NFRD disclosure obligations. For new
lending, banks should start requesting the relevant information in the loan origination process
and no transition period is proposed.
157. In order to facilitate the assessment of these corporates not subject to NFRD disclosure
obligations, and for the purpose of assessing general purpose lending/financing banks may focus
on the main economic activities of the corporate, that is, on its main sources of turnover, rather
than assessing all the activities it carries out.
(v) GAR for loans and advances financing public housing
Figure 9: GAR Local government/municipalities exposures
Type of exposure
Environmental objective Green asset ratio (GAR)
Loans collateralised with residential real estate/granted for acquisition of residential real estate
Climate change mitigation
Proportion of loans to municipalities financing public housing aligned with the Taxonomy, compared to total loans to municipalities financing public housing
Stock and flow, including targets and forward-looking information
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158. Exposures to general governments are, in principle, outside the scope of the proposed
disclosures at this stage. Nevertheless, exposures to local governments and municipalities can
be very relevant for some types of institutions such as public banks, in cases where the bulk of
their business is to fund public housing.
159. In the case of public banks whose business model is to a great extent to finance public
housing, a KPI on the level of compliance with the Taxonomy of the building whose purchase
the bank is financing should be estimated and disclosed by the institution, according to the
following guidelines.
160. Proportion of loans to municipalities financing public housing aligned with the Taxonomy,
compared to total loans to municipalities financing public housing.
161. The methodology for the computation of the numerator and denominator would be the
same as the methodology proposed for residential real estate lending. This means that loans
granted to buy buildings built before 31 December 2020 will be compliant if they have at least
an EPC class A; and if the building is built after December 2020, then it will have to meet the
minus 20% threshold compared to NZEB.
162. The proposals in terms of the transitional period, and proxies to be applied during the
transitional period would also be the same. Similarly, only the environmental objective of
climate change mitigation is considered at this stage.
(vi) Other on-balance-sheet exposures –Repossessed real estate collateral
163. Credit institutions should assess the real estate collaterals (commercial and residential real
estate) in their balance sheets that they have obtained from taking possession from their
counterparties in exchange for the cancellation of a debt, and that are recognised as non-current
assets held-for-sale in their balance sheets. They should assess them for the environmental
objective of climate change mitigation based on the relevant taxonomy technical screening
criteria.
Figure 10: GAR Retail exposures
Type of exposure
Environmental objective Green asset ratio (GAR)
Commercial and residential real estate collateral repossessed by the credit institution and held for sale.
Climate change mitigation
Proportion of commercial and residential repossessed real estate collateral aligned with the Taxonomy, compared to total commercial and residential repossessed real estate collateral.
Stock and flow, including targets and forward-looking information
Transitional activities
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164. The following KPI is proposed as the GAR for the disclosure by institutions of the level of
alignment of their commercial and residential repossessed real estate collateral held-for-sale
portfolio with the Taxonomy, for the environmental objective of climate change mitigation.
165. Proportion of commercial and residential repossessed real estate collateral aligned with
the Taxonomy, compared to total commercial and residential repossessed real estate
collateral.
a. The numerator of the ratio will be the gross carrying amount of commercial and
residential repossessed real estate collateral aligned with the Taxonomy.
i. This will include repossessed held-for-sale buildings built before 31
December 2020 that meet the screening criteria specified by the
Commission in the annex to the Taxonomy delegated act for the
‘Acquisition and ownership of buildings’ for substantial contribution to
climate change mitigation, based on the EPC of the building.
ii. In addition to repossessed held-for-sale buildings built after 31 December
2020 that meet the screening criteria specified by the Commission in the
Annex to the Taxonomy delegated act for the ‘Acquisition and ownership
of buildings’ for substantial contribution to climate change mitigation,
based on the EPC of the building (primary energy demand according to
their EPC rating at least 20% lower than the primary energy demand
resulting from the relevant NZEB requirements).
b. The denominator will include the total gross carrying amount of held-for-sale
commercial and residential real estate collateral repossessed by the credit
institution.
166. Credit institutions should disclose (point-in-time) information for the stock of loans as of
the disclosure reference date, and information on (the flows of) new lending during the
disclosure period. They should also disclose forward-looking information and information on
targets.
(vii) TOTAL GAR
167. Institutions shall disclose information on the TOTAL GAR of the institution. This should
reflect the cumulative value of the following KPIs, by adding the numerators (on taxonomy-
aligned exposures) and denominators (on eligible exposures) of each KPI:
a. Total GAR of financing activities to financial institutions, for all the environmental
objectives.
b. Total GAR of financing activities to NFC subject to NFRD disclosure obligations, for
all the environmental objectives.
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c. GAR for residential real estate exposures, for the objective of climate change
mitigation.
d. GAR for retail car loans, for the objective of climate change mitigation.
e. GAR for commercial real estate exposures to non-NFRD corporates (including
SMEs), for the objective of climate change mitigation.
f. GAR for debt securities and loans and advances to non-NFRD corporates (including
SMEs) other than commercial real estate loans.
g. GAR for loans to local governments for house financing.
h. GAR for commercial and residential repossessed real estate collateral held for sale.
168. Together with the TOTAL GAR, credit institutions shall disclose the percentage of their
total assets covered by the GAR.
169. The total GAR will cover only the objectives of climate change mitigation and climate
change adaptation until the screening criteria for the other environmental objectives are
defined and non-financial undertakings are required to disclose relevant information on them.
3.2.3 KPIs for off-balance-sheet exposures
(i) Green ratio for financial guarantees of corporates subject to NFRD disclosure obligations (FinGuar KPI)
Figure 11: KPI for financial guarantees (FinGuar KPI) - Corporates subject to NFRD disclosure obligations
Environmental objectives
First intermediate KPI Second intermediate KPI FinGuar KPI - financial guarantees
Climate change
mitigation
Proportion of financial guarantees backing debt instruments (loans and advances and debt securities) of corporates subject to NFRD, financing economic activities in sectors covered by the Taxonomy for climate change mitigation, compared to total financial guarantees backing debt instruments of corporates subject to NFRD.
Proportion of financial guarantees backing debt instruments of corporates subject to NFRD, financing taxonomy-compliant economic activities contributing substantially to, or enabling, climate change mitigation, compared to financial guarantees backing debt instruments of corporates subject to NFRD financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation.
Proportion of financial guarantees backing debt instruments of corporates subject to NFRD, financing taxonomy-compliant economic activities contributing substantially, or enabling, climate change mitigation, compared to financial guarantees backing debt securities of corporates subject to NFRD.
Of which, enabling activities Of which, transitional activities
Of which, enabling activities Of which, transitional activities
Stock and flow, including targets and forward-looking information
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Environmental objectives
First intermediate KPI Second intermediate KPI FinGuar KPI - financial guarantees
Climate change
adaptation
Proportion of financial guarantees backing debt instruments of corporates subject to NFRD, financing economic activities in sectors covered by the Taxonomy for climate change adaptation, compared to total financial guarantees backing debt instruments of corporates subject to NFRD
Proportion of financial guarantees backing debt instruments of corporates subject to NFRD, financing taxonomy-compliant economic activities contributing substantially to, or enabling, climate change adaptation, compared to financial guarantees backing debt instruments of corporates subject to NFRD financing economic activities in sectors covered by the Taxonomy for the objective of climate change adaptation.
Proportion of financial guarantees backing debt instruments of corporates subject to NFRD, financing taxonomy-compliant economic activities contributing substantially, or enabling, climate change adaptation, compared to financial guarantees backing debt securities of corporates subject to NFRD.
Of which, enabling activities
Of which, adaptation activities Of which, enabling activities
Of which, adaptation activities
Stock and flow, including targets and forward-looking information
Other environmental
activities
The same ratios for each of the other four environmental objectives included in Article 9 of the Taxonomy Regulation
once the screening criteria have been defined. That is: (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems
Stock and flow, including targets and forward-looking information
170. The methodology for the computation of the KPI for financial guarantees shall be the same
as the methodology specified for the KPIs for loans and advances and/or debt securities of
corporates subject to NFRD disclosure obligations, but applied to the underlying loans and
advances/debt securities that the credit institution is backing.
(ii) Green ratio for assets under management (AuM KPI)
Figure 12: Green ratio for AuM - Corporates subject to NFRD disclosure obligations
Environmental objectives
First intermediate KPI Second intermediate KPI AuM KPI – Assets under management
Climate change
mitigation
Proportion of assets under management (equity and debt instruments) from NFRD corporates financing economic activities in sectors covered by the Taxonomy for climate change mitigation, compared to total assets under management (equity and debt securities) from NFRD corporates.
Proportion of assets under management (equity and debt instruments) from NFRD corporates financing taxonomy-compliant economic activities contributing substantially to, or enabling, climate change mitigation, compared to assets under management (equity and debt instruments) from NFRD corporates financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation.
Proportion of assets under management (equity and debt instruments) from NFRD corporates financing taxonomy-compliant economic activities contributing substantially, or enabling, climate change mitigation, compared to total assets under management (equity and debt instruments) from NFRD corporates.
Of which, enabling activities Of which, transitional activities
Of which, enabling activities Of which, transitional activities
Stock and flow, including targets and forward-looking information
Climate change
adaptation
Proportion of assets under management (equity and debt instruments) from NFRD corporates financing economic activities in sectors covered by the Taxonomy for climate change adaptation, compared to total financial guarantees
Proportion of assets under management (equity and debt instruments) from corporates other than NFRD corporates SMEs financing taxonomy-compliant economic activities contributing substantially to, or enabling, climate change adaptation, compared to assets under management (equity and debt instruments) from NFRD corporates
Proportion of assets under management (equity and debt instruments) from NFRD corporates financing taxonomy-compliant economic activities contributing substantially, or enabling, climate change adaptation, compared to total assets under management (equity and
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Environmental objectives
First intermediate KPI Second intermediate KPI AuM KPI – Assets under management
backing loans and advances to NFRD corporates.
financing economic activities in sectors covered by the Taxonomy for the objective of climate change mitigation.
debt instruments) from NFRD corporates.
Of which, enabling activities
Of which, adaptation activities Of which, enabling activities
Of which, adaptation activities
Stock and flow, including targets and forward-looking information
Other environmental
activities
The same ratios for each of the other four environmental objectives included in Article 9 of the Taxonomy Regulation
once the screening criteria have been defined. That is: (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems
Stock and flow, including targets and forward-looking information
171. The methodology for the computation of the KPI for Assets under Management shall be
the same as the methodology specified for the KPIs for debt securities of corporates and equity
instruments other than SMEs (and other non-NFRD corporates), but applied to the underlying
equity and debt securities.
3.2.4 KPIs for services other than lending – Fees and commissions (F&C KPI)
172. In addition to the lending activity and related interest income, another main source of
income for credit institutions is fee and commission income, a source of income that has
increasing relevance in the current context of low interest rates. The source of income referred
here is the fee and commission income linked to services provided by the institution, other than
lending, including:
issuance or other services related to third-party securities; reception, transmission and
execution on behalf of customers of orders to buy or sell securities; merger and acquisition
corporate advisory services; corporate finance services related to capital market advisory
services for corporate clients or other; private banking related fees; clearing and settlement
services; custody and other related services; payment services; fee and commission income
for distribution of products issued by entities outside the prudential group to their current
customers; loan servicing activities; foreign exchange services and international
transactions (as reported by institutions in FINREP template 22.1‘Fee and commission
income and expenses by activity’).
173. Credit institutions should disclose KPIs for the part of fee and commission income linked to
services aligned with the Taxonomy from corporates subject to NFRD disclosure obligations. The
KPIs should show the proportion of the institution’s fee and commission income derived from
products or services associated with economic activities that qualify as environmentally
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sustainable. This KPI will supplement the GAR, providing a more comprehensive picture of the
level of alignment of the institution with the Taxonomy. The KPI should be defined as follows.
174. F&C KPI - Proportion of the institution’s fee and commission income from corporates
subject to NFRD disclosure obligations, derived from products or services other than lending
associated with taxonomy-aligned economic activities that contribute to the environmental
objective of climate change mitigation, climate change adaptation or other environmental
objectives, compared to total fees and commissions from corporates subject to NFRD
disclosure obligations from products or services other than lending.
a. The numerator of the KPI will include the fee and commission income as specified
in FINREP, ANNEX V, paragraph 284, from services other than lending and asset
management, provided to corporates subject to NFRD disclosure obligations,
associated with taxonomy-aligned activities that contribute to the objective of
climate change mitigation, climate change adaptation or other environmental
objectives.
b. It will be estimated by weighting the fee and commission income from each
counterparty with the proportion of taxonomy-aligned turnover of the corporate
contributing to the relevant environmental objective as disclosed by the corporate
in accordance with Article 8 of the Taxonomy Regulation. For financial
corporations, the ratio for the counterparty to be applied shall be the same as for
the GAR for these corporates.
c. The denominator will be the total amount of fee and commission income from
corporates subject to NFRD disclosure obligations from products or services other
than lending and asset management.
175. Credit institutions will disclose this KPI initially for the objectives of climate change
mitigation and climate change adaptation, and then the total KPI. The KPI will be extended to
cover other environmental objectives once the screening criteria have been defined for them.
3.2.5 Other disclosures: trading portfolio
176. The trading portfolio is excluded from the calculation of the GAR of the institution for the
reasons explained in the section ‘Scope of application of the disclosures’. The EBA’s advice is
that institutions should instead provide explanations on the investment policy regarding their
trading portfolio, overall composition, and on any trend in terms of predominant sectors and
their level of alignment with the Taxonomy. They should also explain potential limits in terms of
environmental risks, and targets in terms of the level of alignment with the Taxonomy.
177. In those cases where the trading portfolio has a more predominant role in the business
model of the credit institution, and its size is above a combined threshold, the EBA’s advice is
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that credit institutions should provide separate, more granular, quantitative information and a
specific KPI for their trading book (Trading KPI).
178. In particular, those credit institutions that do not meet the conditions set out in Article
94(1) of the CRR or the conditions set out in Article 325a (1) of the CRR should disclose
quantitative information and KPIs that show to what extent the institution is trading with
environmentally sustainable assets and to what extent it is contributing to promoting the
trading of this type of asset.
179. For this purpose, the credit institution should disclose the following information:
a. Total trading during the disclosure period in taxonomy-aligned instruments,
including absolute purchases plus absolute sales of taxonomy-aligned securities.
b. Total trading during the disclosure period of eligible securities, including total
absolute purchases plus total absolute sales of eligible securities.
c. Trading KPI: Ratio of absolute purchases plus absolute sales of taxonomy-aligned
securities compared to total absolute purchases plus total absolute sales of
eligible securities.
180. Eligible assets for the computation of the ratio should include equity instruments and
debt securities issued by corporates subject to NFRD disclosure obligations. The numerator of
the ratio will be estimated by weighting the gross carrying amount of debt securities and equity
instruments purchased/sold from each counterparty with the proportion of taxonomy-aligned
turnover of the corporate (for NFC) contributing to the relevant environmental objective as
disclosed by the corporate in accordance with Article 8 of the Taxonomy Regulation. For financial
corporations, the ratio for the counterparty to be applied shall be the same as for the GAR for
these counterparties.
3.2.6 Timeline for the disclosures
(i) Timeline for the disclosure of KPIs related to exposures or services to corporates subject to NFRD disclosure obligations (GAR, FinGuar KPI and AuM KPI, F&C KPI, Trading KPI)
181. All corporates under the scope of application of the NFRD, including credit institutions,
have to start disclosing information in accordance with Article 8 of the Taxonomy Regulation
from January 2022, for the financial year 2021. This means that credit institutions will have to
start disclosing information at the same time as their counterparties, on whose information they
have to rely for their own disclosures. Therefore, the information from their counterparties will
not be available for the first disclosure date.
182. The challenge in terms of availability of data is not the same for new lending (KPIs for flows)
as for the stock of loans (KPIs for point-in-time stock), as institutions should be able to collect
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the relevant information from their counterparties for new loans in the loan origination process.
Credit institutions should be able to update this information for any new loan granted from the
date on which their counterparties can make this information available.
183. Meanwhile, KPIs for stock refer to the stock of loans, bonds, equity and financial guarantees
in institutions’ balance sheets as of the disclosure reference date. Institutions should be able to
start updating the information on their stock once it is available and publicly disclosed by their
counterparties and within a phase-in period of one year, i.e. by December 2022.
184. During the phase-in period institutions should be able to disclose information on the
volume of exposures/revenues to taxonomy-relevant sectors, and proxy information on
estimates and ranges of taxonomy-aligned activities on a best effort basis, based on:
a. Counterparties disclosures on the basis of international standards (e.g. TCFD), and
consistent with the NFRD, when available; institutions should in this case explain
the type of information available and the standards applied;
b. Private information consistent with the NFRD communicated bilaterally to the
institution;
c. Using as a fallback solution relevant proxies and coefficients on taxonomy
alignment by sector, estimated by an independent Commission body, like the
JRC/UZH alignment coefficients developed for the objective of climate change
mitigation at sector aggregate level17.
185. Credit institutions should explain the disclosures provided during the transition period, the
extent to which coefficients and proxies, including JRC/UZH taxonomy-aligned coefficients, are
applied and the use of any other estimates and proxy information for the disclosure of estimates
and ranges.
(ii) Timeline for the disclosures related to exposures to corporates not subject to NFRD disclosure obligations, including SMEs, and to households
186. The EBA advises the establishment of a phase-in period in line with the transitional period
envisaged in the EBA Guidelines on Loan Origination and Monitoring for the collection, on a
bilateral basis, of information relevant for the loan monitoring process. Where institutions do
not have all the relevant information and data to be used for the monitoring of existing
borrowers or credit facilities granted before the application date, they should collect the missing
information and data by 30 June 2024, through regular credit reviews of borrowers.
17 JRC-UZH_Taxonomy-alignment_tool Alessi, L., Battiston, S., Melo, A. S., & Roncoroni, A. (2019). The EU Sustainability Taxonomy: a financial impact assessment. JRC Technical Reports. https://doi.org/10.2760/347810
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187. A similar transition period, until June 2024, is proposed for the disclosure of information
on the stock of exposures. For new lending, banks should start requesting the relevant
information in the loan origination process and no transition period is proposed.
188. During the transitional period, institutions could apply proxies for the calculation and
disclosure of the GAR in terms of estimates and ranges. Proxies could be based on institutions’
assessments, other public information, or as a fallback solution, on coefficients estimated by an
independent EU body (like the coefficients provided by the JRC-UZH Taxonomy alignment tool
for the objective of climate change mitigation and for the relevant sector).18
189. Credit institutions should explain the disclosures provided during the transition period, the
extent to which coefficients, like the JRC/UZH taxonomy-aligned coefficients19, are applied and
the use of any other estimates and proxy information for the disclosure of estimates and ranges.
(iii) Date of application of the disclosures
190. The Commission’s CfA asks the ESAs to analyse whether existing activities should be
covered retroactively or only those relevant to the time period as of the when the disclosure
rules start to apply20.
191. Given the challenges exposed above, linked to the fact that, to a great extent, credit
institutions will have to rely on their counterparties’ disclosures for their own disclosures, and
that a phase-in period has been proposed to address this issue, the EBA does not consider it
feasible to request credit institutions to extend their disclosures retroactively beyond the
financial year prior to the date of application of Article 8 of the Taxonomy Regulation.
192. This means that for those disclosures that are applicable from 1 January 2022, the first
disclosure should cover the financial year 2021 only, and for those disclosures applicable from
1 January 2023, the first disclosure should cover the financial year 2022 only.
3.2.7 EBA Advice to the Commission – Quantitative disclosures
EBA advice to the Commission – Quantitative disclosures
193. GAR – On-balance-sheet exposures in the banking book - Credit institutions should
estimate and disclose their green asset ratio (GAR) for on-balance-sheet exposures for eligible
assets and counterparties, by applying the methodology proposed in this section. They should
also estimate and disclose the percentage of total assets (on-balance-sheet) covered by the
19 JRC-UZH_Taxonomy-alignment_tool
Alessi, L., Battiston, S., Melo, A. S., & Roncoroni, A. (2019). The EU Sustainability Taxonomy: a financial impact assessment. JRC Technical Reports. https://doi.org/10.2760/347810 20 According to the CfA, the disclosures under Article 8 apply as of 1 January 2022 for the environmental objectives of climate change mitigation and adaptation, and as of 1 January 2023 for the other four. The obligations relate to the previous financial year respectively (the disclosure obligation for 1 January 2022 covers the financial year 2021, the disclosure obligation for 1 January 2023 covers the financial year 2022)
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
56
green asset ratio. They should disclose the quantitative data supporting the calculation of the
KPI by using the templates proposed in Annex I to this report.
194. Those banking groups with subsidiaries outside the EU should disclose their GAR for EU
exposures and separate information for non-EU business: for the latter they should identify
lending and equity exposures in the banking book to non-EU counterparties that pertain to
sectors (NACE sectors 4 levels of detail) covered by the Taxonomy. Then, proxies should be used
to determine on a best effort basis the part of those exposures aligned with the Taxonomy, and
disclose this information separately from the EU GAR and with appropriate caveats.
195. F&C KPI – Fee and commission income from services other than lending and asset
management - Credit institutions should estimate and disclose the fee and commission KPI (F&C
KPI) for services to corporates subject to NFRD disclosure obligations other than lending and
asset management, by applying the methodology proposed in this section.
196. For off-balance-sheet exposures credit institutions should estimate and disclose the
following KPIs by applying the relevant methodology described in this section:
FinGuar KPI - Credit institutions should estimate and disclose the KPI for financial guarantees
(FinGuar KPI) for eligible off-balance-sheet assets and counterparties, by applying the
methodology proposed in this section. They should also disclose the quantitative data
supporting the calculation of the KPI by using the templates proposed in Annex I to this report.
AuM KPI - Credit institutions should estimate and disclose the KPI for assets under management
(AuM KPI) for eligible off-balance-sheet assets and counterparties, by applying the
methodology proposed in this section. They should also disclose the quantitative data
supporting the calculation of the KPI by using the templates proposed in Annex I to this report.
197. The trading portfolio should be excluded from the calculation of the GAR of the institution
for the reasons explained in the section ‘Scope of application of the disclosures’.
198. On the trading book, credit institutions shall disclose the following information:
Credit institutions should provide explanations on the investment policy relating to their trading
portfolio, overall composition, and on any trend in terms of predominant sectors and their level
of alignment with the Taxonomy. They should also explain potential limits in terms of
environmental risks, and, if relevant, targets in terms of the level of alignment with the
Taxonomy.
Those credit institutions that do not meet the conditions set out in Article 94(1) of the CRR or
the conditions set out in Article 325a(1) of the CRR should disclose the Trading KPI - Ratio of
absolute purchases plus absolute sales of taxonomy-aligned securities compared to total
absolute purchases plus total absolute sales of eligible securities. They should apply the
methodology proposed in this section. It should cover debt securities and equity instruments
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
57
issued by NFRD corporates. They should also disclose the quantitative data supporting the
calculation of the KPI by using the templates proposed in Annex I to this report.
199. EBA advice on timeline of disclosures:
Phase-in period until December 2022 for KPIs for stock (GAR, FinGuar KPI and AuM KPI) on
exposures to NFRD corporates, and until June 2024 for exposures to retail, and non-NFRD
corporates. During the transition period, banks should disclose the information described in
this document.
For the F&C KPI and Trading KPI, which apply to NFRD counterparties only, the transition period
should be until December 2022. During the transition period, banks should disclose the
information described in this document.
The first disclosure for the financial year 2021 should not apply retroactively: For those
disclosures that are applicable from 1 January 2022, the first disclosure should cover the
financial year 2021 only, and for those disclosures applicable from 1 January 2023, the first
disclosure should cover the financial year 2022 only.
200. Figure 12 provides an overview of the KPIs and information on taxonomy-aligned exposures
that credit institutions should be required disclose, in accordance with the methodology
provided in section 3.2 of this document. Credit institutions should be required to disclose this
information using the templates included in Annex I to this document.
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
58
Figure 13: Summary of proposed KPIs for taxonomy-aligned activities, explained in this section of the document
Type of
counterparty
KPI banking book - Proportion of on-balance-sheet exposures financing activities with sectors covered by the Taxonomy
Of which: Stock of exposures
Of which: New
exposures
Of which aligned with the taxonomy:
Type of exposures
Disclosure of estimates
during transition
period based on proxies
Transition period
Of which: Stock of exposures Of which: New exposures
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
Climate change
mitigation GAR
Financial institutions
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty
Yes Dec-22 (stock of
loans)
NFRD NFCs % and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty
Yes Dec-22 (stock of
loans)
SMEs (including other non-
NFRD corporates)
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty
Yes Jun-24 (stock of
loans)
Retail % and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: Residential real estate (acquisition and renovation) based on collateral EPC, and car loans (not HfT). KPI by type of instrument and
aggregate by type of counterparty
Yes Jun-24 (stock of
loans)
Municipalities/local
governments % and M. Euro
% and M. Euro
% and M. Euro % and M.
Euro % and M. Euro % and M. Euro EU: Housing loans not HfT Yes
Jun-24 (stock of loans)
Repossessed real estate collaterals
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro NA Yes No transition
period
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
59
Type of
counterparty
KPI banking book - Proportion of on-balance-sheet exposures financing activities with sectors covered by the Taxonomy
Of which: Stock of exposures
Of which: New
exposures
Of which aligned with the taxonomy:
Type of exposures
Disclosure of estimates
during transition
period based on proxies
Transition period
Of which: Stock of exposures Of which: New exposures
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
AGGREGATE (on-balance-sheet) CCM
GAR
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU AGGREGATE FOR ALL TYPE OF ON-BALANCE SHEET EXPOSURES not
HfT (including info on % of balance sheet
covered)
Yes Jun-24 (stock of
loans)
Climate change
adaptation GAR
Financial institutions
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty
At a minimum information on exposures to-
taxonomy-relevant sectors
Dec-22 (stock of loans)
NFRD NFCs % and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty
as above Dec-22 (stock of
loans)
SMEs and other non-
NFRD corporates)
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU: L&A, debt securities, equity (not HfT).
KPI by type of counterparty and
aggregate for financing
as above Jun-24 (stock of
loans)
AGGREGATE (on-balance sheet) CCA
GAR
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU AGGREGATE FOR ALL TYPE OF ON-BALANCE SHEET EXPOSURES not
HfT (including info on % of balance sheet
covered)
as above Jun-24 (stock of
loans)
Other environmental objectives*
NFRD NFCs % and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro L&A, debt securities,
equity, financial guarantees, AuM
NA (disclosure requirement not applicable yet)
NA (disclosure requirement not applicable yet)
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60
Type of
counterparty
KPI banking book - Proportion of on-balance-sheet exposures financing activities with sectors covered by the Taxonomy
Of which: Stock of exposures
Of which: New
exposures
Of which aligned with the taxonomy:
Type of exposures
Disclosure of estimates
during transition
period based on proxies
Transition period
Of which: Stock of exposures Of which: New exposures
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
Of which: Transitional/adapt
ation activities
Of which: Enabling activities
SMEs and other non-NFRD NFCs
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro L&A, debt securities,
equity, financial guarantees, AuM
NA (disclosure requirement not applicable yet)
NA (disclosure requirement not applicable yet)
TOTAL GREEN ASSET RATIO
OF THE INSTITUTION
(GAR)**
AGGREGATE (on-balance-sheet) TOTAL
GAR
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro
EU AGGREGATE FOR ALL TYPE OF ON-BALANCE SHEET EXPOSURES not
HfT (including info on % of balance sheet
covered)
Yes (for climate change
mitigation)
Jun-24 (stock of loans)
Off balance-sheet exposures
Climate change
mitigation
NFRD corporates
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro Separate for financial
guarantees (Fin.Guar KPI) and for AuM (AuM KPI)
Yes Dec-22 (stock)
Climate change
Adaptation
NFRD corporates
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro Separate for financial
guarantees (Fin.Guar KPI) and for AuM (AuM KPI)
At a minimum information on
exposures towards
taxonomy-relevant sectors
Dec-22 (stock)
Total
AGGREGATE (on-balance-sheet) TOTAL
GAR
% and M. Euro % and M.
Euro % and M. Euro
% and M. Euro
% and M. Euro % and M. Euro Separate for financial
guarantees (Fin.Guar KPI) and for AuM (AuM KPI)
Yes Dec-22 (stock)
*High level proposal to be revised and specified when there are technical screening criteria
**The total GAR will initially cover the environmental objectives of CCM and CCA, and will be then extended to the other four environmental objectives once there are relevant screening criteria and disclosure obligation
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
61
KPI - Proportion of fees and commissions generated by sectors covered by the Taxonomy
Of which: Aligned with the
Taxonomy (breakdown for enabling and transitional activities)
Type of activities Disclosure of estimates during transition
period based on proxies Transition
period
Climate change
mitigation F&C KPI
NFRD Corporates
% and M. Euro
% and M. Euro Services other than lending and asset
management to NFRD Corporates Yes Dec-22
Climate change
adaptation F&C KPI
NFRD Corporates
% and M. Euro
% and M. Euro Services other than lending and asset
management to NFRD Corporates At a minimum, information on exposures to
taxonomy-relevant sectors Dec-22
Total Net F&C income
alignment F&C KPI
NFRD Corporates
% and M. Euro
% and M. Euro Services other than lending and asset
management to NFRD Corporates Yes Dec-22
KPI for the trading book portfolio - Absolute purchases and sales of debt securities and equity instruments - Sectors covered by the Taxonomy
Of which: Aligned with the
Taxonomy (breakdown for enabling and transitional activities)
Type of exposures Disclosure of estimates during transition
period based on proxies
Climate change
mitigation Trading KPI
NFRD Corporates
% and M. Euro Climate change mitigation Debt securities and equity instruments
issued by NFRD Corporates Yes
Dec-22
Climate change
adaptation Trading KPI
NFRD Corporates
% and M. Euro Climate change adaptation Debt securities and equity instruments
issued by NFRD Corporates At a minimum, information on exposures to
taxonomy-relevant sectors
Dec-22
Total Trading KPI
NFRD Corporates
% and M. Euro Climate change mitigation Debt securities and equity instruments
issued by NFRD Corporates Yes
Dec-22
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
4. Advice for investment firms
201. The Commission’s CfA includes two specific questions addressed to the EBA on the type of
information and KPIs that investment firms should disclose in order to show their level of
alignment with the EU Taxonomy, and on the type of activities that should be considered in
these disclosures. In particular, the CfA puts forward the following questions regarding
investment firms’ disclosures and related KPIs:
a. Which economic activities should be included/excluded?
b. What should the numerator and the denominator for a specific KPI represent for
investment firms?
4.1 Quantitative disclosures, KPIs and methodology
4.1.1 Scope of the disclosures
202. Section A and Section B of Annex I of Directive 2014/65/EU lists investment services and
activities, and ancillary services carried out by investment firms. For the purposes of the KPIs
and methodology in the framework of investment firms’ disclosures, it is reasonable to
categorise investment firms’ activities as:
a. dealing on own account21;
b. other than dealing on own account22; and
c. ancillary services23.
203. Investment firms dealing on own account decide on investment activities and take
positions in the markets either on their behalf or on behalf of clients. Investment firms in such
cases would have a direct impact on the capital allocation and promotion of sustainable finance.
To this end, the design of the KPIs will focus on the value of the investments of the investment
firms.
204. Investment firms’ investment services and activities other than dealing on own account
may have an indirect impact on the allocation of capital and promotion of sustainable finance
in EU markets. However, when investment firms carry out these services and activities, they do
not take investment decisions. Consequently, the design of the relevant KPIs will focus on fees,
21 As per Point 3 of Section A of Annex I of Directive 2014/65/EU 22 Section A of Annex I of Directive 2014/65/EU, with the exception of point 3 23 Section B of Annex I of Directive 2014/65/EU
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
63
commissions and other monetary benefits investment firms generate from these investment
services and activities.
205. Ancillary services are excluded from the scope because the direct or indirect link between
these services and the objectives and destination of the ultimate investment is uncertain and
may not be meaningful.
206. To that end, the EBA’s advice is that the investment services and activities that should be
covered in the disclosure requirements under Article 8 of the Taxonomy Regulation should
include:
a. Reception and transmission of orders in relation to one or more financial
instruments;
b. Execution of orders on behalf of clients;
c. Dealing on own account;
d. Portfolio management;
e. Investment advice;
f. Underwriting of financial instruments and/or placing of financial instruments on a
firm commitment basis;
g. Placing of financial instruments without a firm commitment basis;
h. Operation of an MTF;
i. Operation of an OTF.
207. While investment firms may not have substantial impact on their clients’ investment
decisions in these types of investment services and activities, disclosure is necessary to show
the level of alignment with the taxonomy of investment firms’ activities and transparency may
also influence the direction of investment behaviour.
EBA advice to the Commission
208. Disclosure KPIs and methodology should cover and be designed separately for the following
services:
Investment firms dealing on own account activities, regardless whether the firms are principal
traders or dealing on behalf of their clients (see point 3 of Section A of Annex I of Directive
2014/65/EU; and
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64
Investment firms’ investment services and activities other than dealing on own account (Section
A of Annex I of Directive 2014/65/EU with the exception of point 3).
209. This distinction is important because in the former the investment firms take investment
decisions and hence have a significant impact on the distribution of capital in markets and in the
orientation of flows into sustainable finance. In the latter type of services, the final decision does
not lie with the investment firms and the link between the final investments and the services
provided is less clear, but disclosure is still necessary to understand the level of alignment of
investment firms’ activities with the Taxonomy.
210. The EBA is advising the exclusion of ancillary services from the scope of the disclosures due
to lack of a clear link between the ancillary services provided and the final investment decisions.
Figure 14: Investments: investment services and dealing on own account
211. For the purposes of investment firms’ disclosures under Article 8 of the Taxonomy
Regulation, the EBA is proposing the metrics presented in Figure 15 and in Figure 16.
4.1.2 Investment services and dealing on own account
Figure 15: Investments: investment services and dealing on own account
KPIs for Investment firms
Green asset ratio (GAR)
Dealing on own account services
Financial corporates and NFCs, including SMEs
KPI on revenue
Fees, commissions and other monetary benefits
Services other than dealing on own account
(excluding ancillary services)
Financial corporates and NFCs, including SMEs
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
65
Total assets Assets covered by the EU
Taxonomy
Assets linked to activities
aligned with the EU
Taxonomy
[A] [B] [C]
Dealing on own
account
Of which, on own
behalf
Of which, on behalf of
clients
212. For the purposes of investment firms’ disclosures relating to dealing on own account, the
following KPIs are proposed:
(i) KPIs: assets
a. Share of ‘Assets of sectors covered by the EU Taxonomy’ in ‘Total assets’, i.e. [B] /
[A];
b. Share of ‘Assets linked to activities aligned with the EU Taxonomy’ in ‘Assets of
sectors covered by the Taxonomy’, i.e. [C] / [B]; and
c. Share of ‘Assets linked to activities aligned with the EU Taxonomy’ in ‘Total assets’,
i.e. [C] / [A].
(ii) Investee companies considered
213. For the calculation of KPIs, the investee companies considered include non-financial
corporates subject to NFRD disclosure obligations, non-financial corporates not subject to NFRD
disclosure obligations, financial institutions subject to NFRD disclosure obligations and financial
institutions not subject to NFRD disclosure obligations. While the investee companies that are
subject to NFRD should disclose the necessary information providing key input for investment
firms’ disclosures, such information is not readily available when it comes to investee companies
that do not fall under the scope of the NFRD.
214. For the investment activities of the investee companies not subject to NFRD, investment
firms should rely on information collected by other means, including bilateral engagement with
the investee companies. As a fallback solution, investment firms should use a methodology
based on proxies. This would allow investments in non-reporting entities to be included in the
numerator by assigning coefficients for different industries extrapolating their taxonomy-
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
66
aligned activities from a central methodology based on estimates. The methodology developed
by reputable independent bodies and authorities, e.g. the Commission’s Joint Research Centre,
for climate change mitigation, could be used and could be further adapted based on the
forthcoming Delegated Acts on climate change mitigation and adaptation.
(iii) Investment instruments considered – Eligible assets
215. In terms of investment instruments, the calculation of KPIs should consider debt securities,
equity instruments, cash equivalents and derivatives of investee companies.
216. Investments that are specifically earmarked to raise money for climate and environmental
projects, such as green bonds complying with potential future EU Green Bond Standard, can be
counted in the numerator as 100% taxonomy-aligned activities.
217. In the case of derivatives, the scope should be limited to the eligibility of the underlying
asset within the EU Taxonomy, including derivatives whose underlying assets are debt securities,
equity instruments or commodities. If the underlying instruments of a derivative are debt
securities or equity instruments, they should be treated as in the case of debt securities or equity
instruments. If the underlying instrument of a derivative is a commodity, the derivative should
be treated and included in the scope of the disclosures in accordance with the eligibility of the
commodity in relation to the corresponding sector and activity in the EU Taxonomy. For
example, if the underlying asset of the derivative is natural gas, then the taxonomy alignment
of the investment can be matched with the NACE sector or activity corresponding to natural gas.
(iv) Calculation methodology
218. ‘Assets of sectors covered by the EU Taxonomy’ include ‘eligible’ assets for sectors that are
assessed under the Taxonomy regulation for the relevant environmental objective. ‘Assets
linked to activities aligned with the EU Taxonomy’ include assets that are categorised as
environmentally-sustainable according to the Taxonomy Regulation.
219. With regards to the computation of the GAR, i.e. [C] / [A] for investment firms’ activities
dealing on own account, investment firms should rely on the information that the investee
company will have to disclose in accordance with Article 8 of the Taxonomy Regulation. In
particular, on the information on the proportion of their turnover derived from products or
services associated with economic activities that qualify as environmentally-sustainable under
Article 3 of the Taxonomy Regulation for each environmental objective included in Article 9 (%
Turnover CCM; % Turnover CCA; % Turnover from each environmental objective included in
points (c) to (f) of Article 9). The numerator is designed as the value of the investments weighted
by the proportion of taxonomy-aligned activities (with a breakdown of transitioning and
enabling activities) of the investee company, i.e. by the proportion of turnover of the investee
company aligned with the Taxonomy (and contributing to or enabling the relevant
environmental objective).
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
67
220. While turnover, as an indicator, is relevant and appropriate for non-financial corporates,
this is not the case when the investee companies are financial institutions, including credit
institutions, investment firms, asset managers and insurance companies. In the case of financial
institutions, investment firms’ disclosures should rely on the KPI disclosed by the financial
institution in terms of environmentally-sustainable assets or investments, i.e. the KPI for
financial institutions (in terms of assets or investments) would indicate the taxonomy alignment
of the investment firm’s eligible investments. The KPI to be considered will depend on the type
of investee company and should follow the methodology defined in paragraph 110.
221. In the case of debt securities issued by the investee company with the purpose of funding
specific activities or projects (i.e. other than general financing), or if the investee company has
issued green bonds, investment firms shall assess them not based on the disclosures by the
investee company but on the alignment with the Taxonomy criteria of the activities or projects
funded, based on ad hoc information provided by the investee company for that issuance. In the
case of future issuances aligned with a future potential EU green bond standard, they shall be
assessed based on this standard.
222. For the denominator, ‘Total assets’ includes ‘eligible investments’ instead of taking all
assets invested by investment firms on own account.
223. Sovereign investments such as sovereign bonds are excluded from the GAR calculation not
because they are not a relevant investment but because there is no methodology to assess
whether sovereign bonds are aligned or not with the Taxonomy (the taxonomy screening criteria
are not applicable to them), and they are not subject to standardised disclosure obligations.
Therefore, in most cases, investment firms would not be in a position to collect information to
verify the final use of investment from state authorities.
224. Similarly, non-EU exposures are excluded from the GAR because the EU Taxonomy does
not cover non-EU exposures and it would challenging for the investment firms to collect such
information on investments taking place in third countries. If such information were collected,
its consistency and comparability would be questionable. It is however necessary to consider a
separate KPI for investments that are outside the EU. The EBA is following this practice in its
advice on credit institutions’ disclosures under Article 8.
Simplified illustration for the calculation of KPI [C] / [A] above:
An investment firm dealing on own account has invested EUR 150 million in equity and corporate
bonds. Only EUR 100 million of this investment is eligible under EU Taxonomy; that is the total
assets considered for the KPI. Hence, EUR 100 million becomes the denominator of the KPI.
The investee companies receiving the EUR 100 million investment report under NFRD, therefore
the investment firm in question would rely on the information reported by the investee
company.
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68
On a weighted average basis, the investee company reports 30% of its turnover contributing to
sectors and activities aligned with the EU Taxonomy. Therefore, the taxonomy alignment of this
investment from the investment firm’s point of view is 30%. The investment firm should report
this ratio in order to indicate the taxonomy-compliance of its activity.
It is also calculated that the share of assets eligible under EU Taxonomy is 67%.
For purposes of illustration, in addition to this, if the investment firm has an additional
investment of EUR 5 million in green bonds fully complying with a future potential EU Green
Bonds Standard, it can add up the EUR 5 million investment in green bonds as this investment
receives a 100% weight in the numerator.
The overall alignment of the investment would then be approximately 33.3%, that is
((30+5)/105)*100.
EBA advice to the Commission
225. The EBA’s advice is to introduce a GAR for the ‘dealing on own account’ activities of the
investment firms. The disclosure of the GAR would capture the share of ‘assets linked to
activities aligned with the EU Taxonomy’ in total eligible assets.
226. This ratio should focus on investment firms’ investments including debt securities, equity
instruments and derivatives (those with eligible underlying assets, including debt and equity
securities and commodities) in investee companies that are NFC and financial corporates. In this
case, sovereign bonds and investments outside the EU should be left outside the scope of
calculation of the GAR.
227. When it comes to derivatives, when the underlying asset is a commodity, the scope should
be limited to the eligibility of the underlying asset within the EU Taxonomy.
228. The calculation of the GAR should be based on the information on the proportion of the
investee company’s turnover derived from investment related products or services associated
with economic activities that qualify as environmentally sustainable in accordance with the
sustainable objectives, e.g. climate change mitigation and adaptation.
229. In the absence of such relevant information from the investee companies, investment firms
should use the information they may obtain through bilateral engagements with these
companies or use proxies and estimates for a limited transitional period. The transitional period
allowing the use of proxies and estimates should be longer for the investment firms when their
investee companies are not subject to NFRD. In particular, a transitional period until December
2022 is proposed when the investee company is subject to NFRD disclosure obligations and until
June 2024 for non-NFRD investee companies.
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69
230. The first disclosure for the financial year 2021 should not apply retroactively: For those
disclosures that are applicable from 1 January 2022, the first disclosure should cover the
financial year 2021 only, and for those disclosures applicable from 1 January 2023, the first
disclosure should cover the financial year 2022 only.
231. Investment firms should be required to disclose this information by using the templates
included in Annex II to this document.
4.1.3 Investment services and activities not dealing on own account
Figure 16: Revenue (fees, commissions and other monetary benefits): investment services and activities not dealing on own account
Revenue from services
and activities
Revenue from services
and activities linked to
sectors covered by the
EU Taxonomy
Revenue from services
and activities linked to
sectors aligned with the
EU Taxonomy
[D] [E] [F]
Reception and transmission
of orders in relation to one or
more financial instruments
Execution of orders on behalf
of clients
Portfolio management
Investment advice
Underwriting of financial
instruments and/or placing
of financial instruments on a
firm commitment basis
Placing of financial
instruments without a firm
commitment basis
Operation of an MTF
Operation of an OTF
ADVICE TO THE COMMISSION ON ARTICLE 8 TAXONOMY REGULATION
70
232. For the purposes of investment firms’ disclosures not relating to on own account services
the following KPIs are proposed:
(i) KPIs: revenues (fees, commissions and other monetary benefits)
a. Share of ‘Revenue (fees, commissions and other monetary benefits) from services
and activities linked to sectors covered by the EU Taxonomy’ in ‘Revenue (fees,
commissions and other monetary benefits) from services and activities’, i.e. [E] /
[D];
b. Share of ‘Revenue (fees, commissions and other monetary benefits) from services
and activities linked to sectors aligned with the EU Taxonomy’ in ‘Revenue from
services and activities linked to sectors covered by the EU Taxonomy’, i.e. [F] / [E];
and
c. Share of ‘Revenue (fees, commissions and other monetary benefits) from services
and activities linked to sectors aligned with the EU Taxonomy’ in ‘Revenue (fees,
commissions and other monetary benefits) from services and activities’, i.e. [F] /
[D].
(ii) Clients considered
233. For the calculation of this KPI, investment firms should consider those clients receiving
investment services other than ‘dealing on own account’ services and ancillary services that
are non-financial corporates subject to NFRD disclosure obligations, non-financial corporates
not subject to NFRD disclosure obligations, financial institutions subject to NFRD disclosure
obligations and financial institutions not subject to NFRD disclosure obligations. While the
clients that are subject to NFRD should disclose the necessary information providing key input
for investment firms’ disclosures, such information is not readily available when it comes to
clients that do not fall under the scope of the NFRD.
234. For the services and activities related to client companies not subject to NFRD, investment
firms should rely on information collected by other means, including bilateral engagement with
the clients. As a fallback solution, investment firms should use a methodology based on proxies.
This would allow services to non-reporting corporates to be included in the numerator by
assigning coefficients for their indicative climate-objective-specific (overall) alignment with the
EU Taxonomy from a central methodology based on estimates. The methodology developed by
the Commission’s Joint Research Centre for climate change mitigation could be used and could
be further adapted based on the forthcoming Delegated Acts on climate change mitigation and
adaptation.
(iii) Calculation methodology
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235. With regard to the KPI ([F] / [D]) for investment firms’ activities other than dealing on own
account and ancillary services, the numerator is designed as the ‘weighted average’ of the
revenue (fees, commissions and other monetary benefits) generated by the investment firm in
relation to the aggregate taxonomy compliance of the clients. For example, while the level of
compliance for non-financial corporates is based on their turnover, the level of compliance for
financial institutions is based on the overall taxonomy alignment of their balance sheets, i.e.
GAR for financial institutions, as explained before.
Simplified illustration for the calculation of KPI [F] / [D] above:
An investment firm providing investment advice to a non-financial corporate receives a EUR
10 million fee for this investment service. According to the NFRD disclosures of the client, its
overall alignment with EU Taxonomy is 30%. In this case, the investment firm’s taxonomy
alignment for the specific investment advice would also be 30% (or EUR 3 million).
In addition, the investment firm starts providing another investment advice service to a
financial institution from which it receives a fee of EUR 50 million. This financial institution,
under NFRD, discloses its GAR at 5%.
In this case, the taxonomy alignment of the investment firm’s services to these two clients
would be approximately 9%, that is ((3+2.5)/60)*100.
236. Similarly, services to non-EU clients are excluded from the computation of the KPI because
the EU Taxonomy does not cover non-EU business and it would challenging for the investment
firms to collect such information. If such information were collected, its consistency and
comparability would be questionable.
EBA advice to the Commission
237. The EBA’s advice is to introduce a KPI for investment firms’ services and activities other
than dealing on own account and ancillary services to clients, including NFC and financial
corporates.
238. This KPI should be based on the revenue (fees, commissions and other monetary benefits)
that investment firms generate from their investment services and activities (other than dealing
on own account and ancillary services) provided to their clients. The disclosure of this KPI would
capture the share of ‘revenue from services and activities of sectors aligned with EU Taxonomy’
in total eligible revenue from services and activities.
239. The calculation of the KPI should be based on information on the proportion of the client’s
economic activities’ (turnover KPI) overall alignment with the EU Taxonomy. In case of clients
that are financial institutions, the calculation of the KPI should be based on the KPI in terms of
assets or investments disclosed by the financial institution, as explained in the section on credit
institutions.
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240. In the absence of such relevant information from clients, investment firms should use the
information they may obtain through bilateral engagements with their clients or use proxies and
estimates for a limited transitional period. The transitional period allowing the use of proxies
and estimates should be longer for investment firms when their investee companies are not
subject to NFRD. In particular, a transitional period ending in December 2022 is proposed when
the investee company is subject to NFRD disclosure obligations and ending in June 2024 for non-
NFRD investee companies.
241. The first disclosure for the financial year 2021 should not apply retroactively: For those
disclosures that are applicable from 1 January 2022, the first disclosure should cover the
financial year 2021 only, and for those disclosures applicable from 1 January 2023, the first
disclosure should cover the financial year 2022 only.
242. Investment firms should be required to disclose this information by using the templates
included in Annex II to this document.
4.2 Further considerations
243. To ensure that helpful information is provided to market participants, the EBA believes that
the investment firms’ reporting should indicate the environmental objectives as well as the
nature of the activities, whether enabling or transitional.
244. The EBA suggests that the Commission could consider additional voluntary disclosures
based on Capex. These additional disclosures could include the same KPIs proposed based on
Capex from the investee companies/clients, as suggested in Figure 13 and Figure 14. In some
cases, information on Capex may give forward-looking feedback on the direction of investment
as it reflects new, incremental green investments in the economy filling the existing investment
gap. This proposal is in addition to the minimum disclosures of KPIs proposed in the previous
section. Unlike the case for credit institutions, where information on flows of lending and on
specialised lending should show the dynamics of how credit institutions’ activities are linked to
the transitioning of their counterparties, in the case of investment firms, this information does
not exist. For this reason, the EBA proposes further considerations for investment firms (and not
for credit institutions) additional disclosures of KPIs based on Capex, in addition to the minimum
requirements of KPIs based on turnover.
245. The EBA is of the opinion that the disclosures should take place after netting potential
hedges and offsets, regardless of the instrument used (e.g. derivatives, repurchases, short
positions), as this would mirror the commitment approach typically used to calculate net
leverage for funds. In this context, the methodology for calculating net short positions in Article
3(4)-(5) of Regulation (EU) 236/2012 (the ‘Short-Selling Regulation’) could be useful as a
reference for the netting methodology.
246. Data represent a major challenge for investment firms to comply with their future
disclosure obligations under Article 8 of the EU Taxonomy Regulation. To this end, the
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investment firms should, to the extent possible, rely on the disclosures of investee companies
and their clients under NFRD. Where relevant information is not available, investment firms
should use proxies and engage in bilateral dialogue with their clients’ investee companies to
collect the necessary information. For the use of proxies, until the data become available under
NFRD, a transition period until December 2022 can be introduced for disclosures of KPIs and
GAR. Proxy information in terms of estimates and ranges can be disclosed during this period.
For investment firms whose investee companies are not subject to NFRD, the transitional period
allowing the use of proxies and estimates should be until 2024. This approach for the disclosures
of investment firms would also align with the transition period proposed for credit institutions’
disclosures.
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5. Advice on qualitative disclosures
247. The EBA considers that the disclosure of quantitative KPIs, defined in accordance with the
methodologies outlined in this advice, should be accompanied by qualitative information to
support the proper understanding of these KPIs.
248. As the disclosure of the level of taxonomy alignment by banks and investment firms will be
new for the market, contextual and complementary information is expected to play an
important role in enabling the appropriate interpretation and use of the data items published,
especially in the first years of implementation. Moreover, the potential use of the Taxonomy by
institutions in their strategy and engagement with counterparties has to be clearly explained to
properly understand how and to what extent their activities are aligned with taxonomy-eligible
activities. Finally, institutions may publish further information to provide a more comprehensive
view of their green or sustainable finance strategies, whilst this should not jeopardise the clarity
of the taxonomy-related disclosures. In that sense, supplementing information to the taxonomy-
aligned exposures needs to be targeted and institutions should ensure that publishing other
information or metrics do not make it difficult to find the taxonomy-related KPIs.
249. Against this background, the EBA recommends that institutions publish the following
qualitative information:
a. Contextual information to help stakeholders understand the quantitative indicators
250. This contextual information should at least include information on the scope of assets
covered by the KPIs. Indeed, it is particularly important that institutions disclose to what extent
the KPIs cover their activities as a whole. This would favour a proper understanding of the ratio
and would put it into context in terms of its relevance compared to the balance sheet of the
institution, and compared to other institutions. Depending on the types of counterparties and
asset classes and the business lines in which they are most active, institutions’ activities are
indeed expected to be differently captured by taxonomy-related KPIs. Information on the
coverage of the KPIs, in relation to a brief description of the most significant activities and
business lines of the institution, should therefore be provided.
251. In addition, institutions should provide clear information on the data sources associated
with the KPIs, their features and potential limitations. Notably, in the case of real estate related
KPIs, institutions should remember that EPCs are used as a proxy to taxonomy alignment and
explain the meaning and characteristics of the local, regional or national EPCs on which they
rely, taking into account that these are not harmonised at the EU level.
252. More generally, information on the data limitations faced by the institutions and the on-
going efforts of the institutions to bridge data gaps would be useful, including explanations on
the extent to which they are using proxies, the types of proxies used, and the disclosure of
information in terms of estimates and ranges.
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b. Justifications about why the level of taxonomy-aligned activities of the institution
varies from one year to another
253. Institutions should describe the main drivers explaining the changes in the level of the
different KPIs and of the aggregate GAR over time. In particular, this should clearly differentiate
between reasons associated with new business choices and reasons associated with data and
methodological considerations.
c. Whether and, if so, how the institution is using the Taxonomy in its business
strategy, product design processes and engagement with clients and
counterparties
254. Institutions should describe whether and, if so, how and to what extent they make use of
the Taxonomy when setting their strategy, including when they establish objectives and targets,
as well as in their product design processes and when they engage with counterparties on their
transition and adaptation strategies. In particular, institutions should describe or provide a link
to their environmental strategy and targets to clarify, specifically, whether they are using the
Taxonomy to set environmental targets.
d. Information on the trading book
255. Institutions that are not required to disclose quantitative information on held for trading
exposures should provide qualitative information on the extent to which their trading portfolios
are aligned with the Taxonomy. This should include at least a description of: the overall
composition of the trading portfolios in light of the Taxonomy criteria; the policy of the
institution with regard to the alignment of a certain portion of its trading portfolio with the
Taxonomy; the observed trends for assessing advances in the degree of alignment of the trading
portfolio with the Taxonomy; any objectives related to the taxonomy alignment of the trading
portfolio set by the institution.
e. Additional or complementary information
256. Institutions may publish additional or complementary information when they consider this
will help stakeholders understand their strategies or the weight of the financing of sustainable
activities in their overall activity. This additional information should not replace the taxonomy-
related KPIs but can play a role in complementing them.
257. Whilst institutions should have a degree of flexibility to establish additional metrics or
additional information, institutions may provide such information, or cross-reference
information provided elsewhere, e.g. in regard to their actions and strategy on green or
sustainable finance, going beyond the role of the Taxonomy. This could include information on
sustainable products (e.g. sustainability linked loans) and actions taken to support clients in their
transition towards sustainable business models. Institutions may also provide information on
the alignment of their portfolios, such as credit portfolios, with international or EU climate
objectives, such as the 2°C scenario or the EU’s ambition for a 55% emissions reduction in 2030
and net zero emissions in 2050. This metric can provide a broader view of institutions’ alignment
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with transition pathways, with forward-looking information that can help understand their
positioning and strategies.
EBA advice to the Commission – Qualitative information
258. The disclosure of quantitative KPIs should be accompanied by qualitative information to
support the institutions’ explanation and markets’ understanding of these KPIs.
259. The EBA advises institutions to publish qualitative information covering the following
aspects:
contextual information to help stakeholders understand the quantitative indicators
(including, at least, the scope of assets and activities covered by the KPIs, information on data
sources and limitations, and on the use of proxies, estimates and ranges);
explanations on the evolution of the level of taxonomy-aligned activities over time, starting
from the second year of implementation, distinguishing between business-related drivers
and methodological and data-related drivers;
description of the use of the Taxonomy in institutions’ business strategy (including target
setting), product design processes and engagement with clients and counterparties;
for institutions that are not required to disclose quantitative information on held for trading
exposures, qualitative information on the alignment of trading portfolios with the Taxonomy
(overall composition, trends observed, objectives and policy);
additional or complementary information to help understand institutions’ strategies and the
weight of the financing of sustainable activities in their overall activity.
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6. Policy recommendations and other considerations
6.1 Policy recommendations
260. The EBA addresses the following recommendations to the European Commission, based on
the assessment that actions suggested would support the reliability and comprehensiveness of
institutions’ disclosures related to the Taxonomy.
6.1.1 Continue to take actions to create an enabling disclosure and data framework
261. Data availability and accessibility are key aspects for institutions’ disclosures, which the EBA
acknowledges, as institutions’ disclosures greatly depend on counterparties’ data. In the advice,
the EBA has made a number of proposals regarding the use of proxies as well as estimates,
ranges and transitional periods to facilitate disclosures by institutions. In order for the
disclosures in terms of estimates and ranges to be reliable and comparable, the EBA
recommends that institutions apply as a fallback solution taxonomy alignment coefficients that
are publicly available and developed by an EU body, in order to ensure the comparability and
reliability of disclosures. In addition to these proposals, we encourage policy-makers to take
further actions to establish an enabling disclosure and data framework.
262. To this end, the EBA reiterates its support to broaden the scope of application of the NFRD
as part of the on-going NFRD review. This should allow a larger share of institutions’
counterparties to be captured and more consistent disclosures to be made by corporates,
including information related to the level of taxonomy alignment. When broadening the scope
of application of the NFRD, SMEs should be considered in a proportionate way and the NFRD
should define clear proportionality criteria (quantitative and qualitative) to delimit which SMEs
the reporting obligations apply to. Developing simplified and proportionate, although relevant,
standards for SMEs, in addition to the proportionality criteria, would contribute to alleviating
the burden on SMEs arising from bilateral demands for information, including from financial
institutions, and help them gain access to business opportunities.
263. In addition, as the demand for relevant, reliable and comparable company disclosures on
non-financial matters is increasing, we consider that a central element of the NFRD revision
should be the introduction of a higher level of standardisation in the non-financial disclosure
requirements. In particular, we consider it would be important to include the detailed disclosure
standards in regulatory or implementing technical standards, setting out mandatory rather than
voluntary requirements. The EBA also reiterates its support for the implementation of a central
data point where ESG-related information would be stored, and be machine-readable. This
should include the corporate reporting made under Taxonomy Regulation requirements.
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264. Other actions to facilitate the access to relevant data by financial institutions should also
be considered. In particular, the EBA has observed that access to data related to EPCs of houses
or buildings is currently constrained by a number of limitations, even when EPC databases exist
at regional or national level. In order to support disclosures by institutions on their real estate
portfolios, the Commission should support the establishment of publicly accessible EPC
databases or registers at least at the national level. In addition, extending the scope of the
obligation to also provide EPCs in the case of renovation of houses or buildings, or when a loan
is granted for this purpose, would make it possible to capture a higher share of institutions’
exposures under the proposed KPIs.
265. In the same spirit, further actions to enhance the reliability of data can be envisaged. For
example, under the current framework, NACE codes would be expected to be self-declared by
corporates and that a given corporate could be allocated to different codes. Further verification
requirements and harmonisation can be sought, with a view to limiting arbitrage opportunities
and reducing the due diligence or verification costs for institutions.
6.1.2 Aim for international taxonomy standards or minimum criteria and developing an equivalence framework
266. The EBA has included in its advice a proposal to distinguish between disclosures related to
EU exposures on the one hand and non-EU exposures on the other, as assessing the level of
alignment of the latter with EU Taxonomy would be particularly challenging at this point for
institutions. However, in order to provide information on the largest possible portion of
institutions’ exposures, institutions with non-EU subsidiaries should also try to provide
estimates of the level of ‘greenness’ of their non-EU exposures. The EBA acknowledges that the
quality and reliability of this information will need to be enhanced over time.
267. From that perspective, the EBA sees a need, going forward, to encourage the
harmonisation of existing taxonomies and progress towards the development of international
taxonomy standards or common criteria. As a first step, an equivalence framework between the
EU Taxonomy and other national or regional taxonomies should be developed. This would
enhance transparency about what is commonly ‘green’ across countries. It could facilitate the
adoption and application of the EU Taxonomy by non-EU actors, and greatly support the
reliability of the assessment by institutions of the level of taxonomy alignment of their non-EU
exposures. While this equivalence framework is being developed, the EBA is of the view that a
common coefficients methodology developed by an independent EU body and that institutions
may use as a fallback solution to provide estimates based, for instance, on sector based proxies
or coefficients on the level of alignment with the Taxonomy, would support the reliability and
comparability of disclosures24.
268. The EBA supports the work undertaken by the International Platform on Sustainable
Finance (IPSF) in this direction. The IPSF has announced that it has initiated a working group on
24 Similar to the JRC/UZH taxonomy aligned coefficients estimated for EU NACE sectors and for the objective of climate change mitigation
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taxonomies that will work toward a ‘Common Ground Taxonomy’ highlighting the
commonalities between existing taxonomies. The objectives announced by the IPSF are to
comprehensively compare existing taxonomies for environmentally sustainable investments
developed by public authorities of member countries, identify commonalities and differences in
their respective approaches, criteria and outcomes. By mid-2021, a Common Ground Taxonomy
would display the commonalities between the taxonomies already existing within the IPSF
membership.
269. The EBA considers that this Common Ground Taxonomy can play an important role to
gradually establish a common reference point for the definition of investments that are
considered as environmentally sustainable, in a first step across relevant IPSF jurisdictions and
at a later stage across a wider range of countries. In addition to contributing to scaling up cross-
border green investments, common standards or criteria would support the classification of
assets by institutions and facilitate taxonomy-related disclosures for non-EU exposures.
270. Furthermore, the EBA supports the IFRS Foundation’s initiative to consider the potential
for globally accepted sustainable reporting standards to promote internationally consistent and
comparable non-financial reporting 25 . This should increase the possibilities for achieving
enhanced data availability, public disclosures and comparability on sustainability reporting on a
global scale.
6.1.3 Extend the scope of the Taxonomy to enable more encompassing disclosures
271. The EU Taxonomy currently provides a basis for harmonised and comparable disclosures
related to economic activities that qualify as environmentally sustainable. In a first step, the
completion of the EU Taxonomy for all economic activities and the gradual development of more
granular criteria for other environmental objectives beyond climate change will be key for the
practical implementation of the EU Taxonomy and, hence, for the publication of wider, more
comparable disclosures.
272. In the longer term, further extension of the scope of the Taxonomy would enable more
encompassing disclosures reflecting a broader share of institutions’ exposures beyond those
associated with environmentally sustainable activities. In this regard, the EBA supports the work
currently being undertaken by the Platform on Sustainable Finance established by the
Commission and will continue its participation in this fora. In accordance with its mandate, the
Platform is considering in particular whether existing actions need to be complemented by the
development of a taxonomy for economic activities that have low or negative environmental
impacts, as well as a taxonomy to cover social objectives, in line with the review clause of the
Taxonomy Regulation.
273. Should the scope of the Taxonomy ultimately be extended, the application of disclosure
requirements reflecting this broader scope should be considered. From the EBA`s perspective,
25 ESAs letter on the IFRS consultation on sustainability reporting
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an extension of the scope of the Taxonomy appears desirable to facilitate the consistency and
comprehensiveness of ESG disclosures and reporting by financial institutions. Such completed
taxonomies would provide the basis for setting harmonised disclosure requirements, with a
view to providing comparable, reliable and more comprehensive information on institutions’
exposures taking into account their environmental (or social) characteristics. Such a framework
would notably support the EBA in defining disclosure requirements on ESG risks for large
institutions in accordance with Article 449a of the CRR, as mandated under Article 434a of the
same Regulation.
6.1.4 Consider introducing a review clause in the delegated act
274. In light of the novelty and evolving nature of sustainability-related disclosures, the EBA
considers that there would be a merit in introducing a review clause in the delegated act. This
review clause would allow the monitoring and assessment of the first taxonomy-related
disclosures made by institutions and assess whether adjustments are needed, also taking into
account the transitional periods advised by the EBA for the computation of some KPIs (e.g.
SMEs). In order to provide certainty to institutions, it should, however, be made clear that the
KPIs and methodologies that will be included in the delegated act will remain valid to a very
large extent and that adjustments are likely to go ‘upward’ rather than ‘downward’.
275. In particular, a review of taxonomy-related disclosure requirements could be used to
consider new possibilities arising to extend the scope of disclosures, to additional asset classes
or types of counterparties, on the one hand, and to exposures associated with social objectives
or low and negative environmental impacts on the other – depending on legislative
developments for the latter.
276. With regard to types of asset classes and counterparties included in the KPIs, the EBA
considers, for instance, at this point, that assessing the level of alignment of the trading book,
sovereign or central bank exposures is challenging for institutions, in the absence of appropriate
methodology. However, new methodologies to establish the contribution or alignment with the
Taxonomy of these exposures may be developed over time, building, for instance, for sovereign
exposures on the efforts to better trace the public expenditures as part of the EU green recovery,
and, for central bank exposures, on the evolving screening methodologies of central bank
portfolios in light of sustainability characteristics.
277. New sources of data, new standards and new methodologies or proxies, e.g. stemming
from a review of the NFRD, the establishment of a European single ESG data point and an EU
Green Bond Standard, international harmonised criteria or other developments, could then be
properly accounted for when updating the taxonomy-related disclosure requirements.
EBA advice to the Commission
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278. The EBA recommends to the Commission a number of actions to support the reliability
and comprehensiveness of institutions’ disclosures related to the extent to which their
activities are aligned with the Taxonomy.
Pursuing the establishment of an enabling disclosure and data framework, e.g. through the
review of the NFRD (scope of application, mandatory and standardised requirements, central
data point) and better access to EPC registers.
Developing an equivalence framework between the EU Taxonomy and other national or
regional taxonomies, and aiming for international standards and criteria, in order to allow a
better assessment of the taxonomy-alignment level of non-EU exposures and clients.
Extending the scope of the Taxonomy as a step towards more encompassing disclosures –
first by completing the Taxonomy for all economic activities and environmental objectives
and by considering actions to develop a low or negative impact Taxonomy and a social
Taxonomy.
Considering the development by an independent EU body, such us the European
Commission’s Joint Research Centre, of a common coefficients-based methodology on sector
taxonomy alignment for all environmental objectives that institutions could apply as a
fallback solution in the absence of relevant information.
Introducing a review clause in the delegated act, in order to monitor the first taxonomy-
related disclosures of institutions and assess the possibilities of adjusting requirements, e.g.
by further extending the scope of disclosures to additional asset classes or types of
counterparties.
6.2 Role of the Taxonomy for the banking sector and interlinkages with other policy developments including EBA mandates
279. The EU Taxonomy is a centrepiece of the EU actions to support the transition to a
sustainable economy, in which the financial sector is expected to play an important role. In the
current context, the Taxonomy appears as an important enabler for implementing the European
Green Deal as part of the EU’s response to climate and environmental challenges and for
supporting a post-COVID green recovery.
280. As stated in the EBA action plan on sustainable finance26, the EU Taxonomy supports the
work the EBA is conducting to incorporate Environmental, Social and Governance (ESG) factors
26 https://eba.europa.eu/sites/default/documents/files/document_library//EBA%20Action%20plan%20on%20sustainable%20finance.pdf
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and risks into the regulatory framework of banks and investment firms, in accordance with the
mandates received under the relevant Regulations 27 and Directives 28 . As further explained
below, the Taxonomy plays a supporting role in all of these mandates.
281. The development of the EU Taxonomy has a number of implications for the banking sector.
By providing harmonised definitions of environmentally sustainable activities and in light of its
potentially wide reach and impact, the Taxonomy can support institutions from different
perspectives in their approach to supporting the transition towards a more sustainable economy
and in identifying and managing environmental-related challenges.
282. The Taxonomy by and of itself cannot cover all needs and institutions must consider a range
of actions to appropriately deal with the impacts of ESG factors. As a classification table that
does not provide a judgment on the financial performance of activities29, the Taxonomy has not
been designed to solve all prudential issues related to climate and ESG risks, nor to force specific
investment choices from regulated entities. Institutions will increasingly be expected to manage
and disclose the environmental and climate-related risks across all (i.e. also non-green)
portfolios, based on the materiality of risks, and will further need to consider the transition
pathways and adaptation strategies of their counterparties, including beyond a taxonomy-
aligned or misaligned boundary.
283. Notwithstanding these limitations, the Taxonomy is a cornerstone of the EU’s initiatives on
sustainable finance and institutions, including banks, need to consider how to approach and
make use of it, taking into account strategic objectives and regulatory requirements.
284. The first, mandatory area where the Taxonomy will affect institutions relates to disclosures,
in line with the primary purpose of the Taxonomy to increase transparency and limit the risk of
greenwashing and market fragmentation in the classification of green activities. This use
responds to one of the objectives of the Commission’s action plan on sustainable finance (2018)
which is to foster transparency in the financial system. This objective has also led to several EU
legislative initiatives on ESG disclosures. Accordingly, institutions will have to comply with
transparency requirements introduced by the EU Taxonomy Regulation (Article 8, which is the
focus of this advice) and the Regulation on Sustainability-Related Disclosures in the Financial
Sector (product-level disclosure requirement30).
285. In addition, the Capital Requirements Regulation (CRR), as amended in 201931, includes new
disclosure requirements on environmental, social and governance risks for large institutions
which have issued securities that are admitted to trading on a regulated market of any Member
27 Credit Requirements Regulation, Investment Firms Regulation, Sustainable Finance Disclosure Regulation 28 Credit Requirements Directive, Investment Firms Directive 29 As spelled out in the Technical Expert Group report 30 These requirements are applicable to Financial Market Participants who market, or manufacture, financial products in the European Union. Products in scope include notably Corporate & Investment Banking (securitisation funds, venture capital and private equity funds, portfolio management and index funds). 31 Regulation (EU) No 575/2013 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02013R0575-20180101. See in particular Article 449a
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State. This includes disclosures on climate-related physical risks and transition risks as defined
in the report referred to in Article 98(8) of Directive 2013/36/EU. The EBA is developing draft
implementing technical standards (ITS) specifying this disclosure requirement in a way that
would convey sufficiently comprehensive and comparable information for users of that
information to assess the risk profiles of institutions. Institutions will have to start disclosing this
information from June 2022. The EBA intends to explore and ensure relevant synergies between
information to be published under the Taxonomy Regulation and information that will be
requested under the CRR.
286. The EBA welcomes these initiatives and considers that achieving higher transparency will
prove critical to enhance market discipline and allow investors and other stakeholders to
compare how financial institutions position themselves, and to make informed decisions.
Institutions’ disclosures of the extent to which their activities are associated with taxonomy
activities, and the targets set by institutions, will provide information on institutions’
involvement in green activities and help understand their positioning and strategies. By showing
the evolution of the level of taxonomy-aligned activities over time, and reporting this together
with information on exposures vulnerable to transition and physical risks for Pillar 3 purposes,
this information will also highlight some of the actions institutions are implementing to adjust
their exposures and mitigate the likelihood of materialisation of climate change risks.
287. In addition, and closely related to disclosure requirements, institutions may use the
Taxonomy in their strategy setting and product design processes. The Taxonomy Regulation
does not mandate any investments in economic activities meeting its set of criteria and
institutions should remain free and responsible to design and implement the strategy they
consider most appropriate. By providing an EU-based framework of reference, the EU Taxonomy
can nonetheless serve as a robust supporting instrument that institutions may decide to use in
some instances.
288. As explained in the EBA Discussion Paper on ESG risk management and supervision32, a
proactive management approach is required from institutions to properly cater for the forward-
looking, cross-cutting and long-term characteristics of ESG risks and with the view to ensuring
the long-term resilience of business models. Such a long-term driven and proactive risk
management approach entails, inter alia, monitoring the business environment (including with
a long-term perspective), setting strategic objectives and limits, engaging with customers and
counterparties (e.g. constructive dialogue on how to transition towards sustainable business
models) and considering the development of sustainable products.
289. From that perspective, the EU Taxonomy may support institutions in their proactive risk
management approach and in accordance with institutions’ risk appetite. As included in the EBA
discussion paper, institutions that wish to align more closely with the EU Taxonomy could for
example set a target on a certain proportion of their overall credit or investment portfolios to
32 https://eba.europa.eu/sites/default/documents/files/document_library/Publications/Discussions/2021/Discussion%20Paper%20on%20management%20and%20supervision%20of%20ESG%20risks%20for%20credit%20institutions%20and%20investment%20firms/935496/2020-11-02%20%20ESG%20Discussion%20Paper.pdf
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be associated with activities that qualify as environmentally sustainable under the Taxonomy.
In this regard, institutions could find it useful that the Taxonomy does not only capture activities
that are already sustainable, but that also the financing of improvement measures may be
counted as eligible if they are part of an implementation plan to meet the applicable activity
threshold over a defined period of time.
290. In addition to setting and disclosing strategic objectives and/or limits and related key
performance indicators (e.g. using the EU Taxonomy as a reference), institutions should assess
the need to potentially develop sustainable products or to adjust features of existing products
in alignment with their strategic objectives and/or limits. When developing these products, they
would ideally be aligned with available standards and labels, notably the EU Taxonomy.
Furthermore, when engaging with counterparties, institutions may also rely on the Taxonomy
as it provides an understanding of the degree of sustainability of activities in which
counterparties operate. This assessment can then potentially be used to set out how
counterparties plan to move towards greater taxonomy alignment over time and to set up
related targets.
291. Furthermore, by providing the basis for a harmonised classification of green activities, the
Taxonomy is also expected to play a supporting role in the longer term, to assess the risk profile
and risk characteristics of exposures associated with green activities. This would prove
instrumental in assessing the need for a dedicated treatment of those assets, as is already
mandated to the EBA under Article 501c of the CRR.
292. The EBA invites institutions to actively consider the implications of the Taxonomy for their
operations in all these areas (disclosures, product design, classification of exposures, strategic
objectives and targets in line with institutions’ risk appetite).
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7. Costs to banks and investment firms
293. The CfA explicitly requires the three ESAs to assess the impacts any proposed metrics might
have on undertakings, including in terms of costs. For this purpose the EBA has conducted a case
study with a selected sample of banks, asking specific questions on costs related to KPIs in
general and the estimated costs banks anticipate for some of the proposed KPIs.
294. Banks were selected based on the depth of information received in the responses to the
EBA Survey on credit institutions’ disclosure of information related to ESG risks conducted in
202033, as well as information gathered as part of calls with industry associations as well as
bilateral calls. In total, 10 banks were contacted, of which seven participated. These were mainly
large banks, from five jurisdictions.
295. As part of the survey conducted for investment firms, the EBA also included specific
questions on the costs for investment firms of developing KPIs for taxonomy alignment.
296. As the sample of the respondents is small, actual figures or statistics will not be
representative of the EU banking sector or investment firm sector as a whole. Nevertheless, the
more in-depth information gathered from the sample of banks and investment firm associations
provides valuable insights into key concerns and anecdotal evidence of the key challenges faced.
7.1 Credit institutions
297. Responding banks are actively incorporating sustainability into their business models (for
instance through multi-year business transformation initiatives, participation in pilots such as
those of UNEP-FI and the EBA sensitivity analysis, or specific in-house methodologies to measure
climate risk).
298. One bank has a KPI in place which is at least partially based on the EU Taxonomy delegated
acts. The KPI aims to measure nominal flows into environmentally sustainable investments.
Assessments are performed broadly based on the EU Taxonomy delegated acts for those
activities where it has been assessed as feasible or where data challenges could be overcome.
Certain adjustments have been made, for instance for non-EU exposures in the form of
adjustments to the thresholds and screening criteria, or own judgements are combined with the
outcome of the taxonomy assessment. The institution has started the processes, inter alia, of
engaging with clients, training staff and including sustainability aspects in the client relationship
management (CRM) process, but states that it is still at a very early stage.
299. Otherwise, banks included in and responding to the case study generally have not yet
developed processes to assess and calculate taxonomy alignment or related KPIs. Some have
stated that an assessment has been piloted, for example in the form of participation in the EBA
33 Survey on credit institutions’ disclosure of information related to ESG risks
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climate sensitivity pilot, or by assessing a number of large corporates. Institutions have started
to think about and to anticipate the application of the Taxonomy. However, established
processes and systems seem to be in place to date only in one bank in this sample.
300. This confirms the general acknowledgment that the costs for the banking sector of
implementing the assessment and KPIs of taxonomy alignment are likely to be significant at the
outset. Unlike the responding banks, many (smaller) institutions have not even started, or are
at very initial stages of incorporating ESGs in general into their strategies and risk management,
which is likely to lead to even higher initial costs for these institutions. More specific information
on banks’ progress, specifically on disclosures, is discussed in Annex III.
301. The next sections first explore the specific types of costs banks participating in the case
study anticipate will be associated with the implementation of KPIs for taxonomy alignment in
general and, secondly, look at the costs anticipated for different types of KPIs.
7.1.1 Key challenges and costs of KPIs for taxonomy alignment
Key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy
302. The biggest challenge perceived by respondents is data availability, a finding that very much
resonates with previous exchanges with the industry. All but one bank scored data availability
as extremely challenging (maximum score of 10). In particular, a lack of clarification and
governance of data at the EU level as well as a lack of support for institutions on this matter was
stated, creating concerns regarding data comparability, scalability and as to how far this is
sustainable. The concern exists in particular for SMEs, the retail portfolio and non-EU exposures,
counterparties not covered by the NFRD. Not only was the availability of data stressed, but also
counterparties’ own ability to assess and disclose information in the first place. Data challenges
for the DNSH assessment were also mentioned.
303. Even in the case of larger corporate customers, one bank stated that third party
assessments vary widely and that they would therefore need to approach customers on a
bilateral basis. In this context, it was also mentioned that bilateral exchange between banks and
counterparties was not efficient at the bank level, the counterparty level or at the level of the
system as a whole, as multiple banks would be contacting the same counterparty.
304. In the context of data availability, several respondents raised the need for a data hub
organised centrally at EU level. One bank also raised the need for a general strategic plan on
data to support the sector. In addition, one bank stated that a certification process would need
to be developed by the European authorities for some methodologies and information provided
by external providers.
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305. Several respondents also raised the timing issue arising from disclosures by counterparties
being applicable only from January 2022 and the applicability to financial institutions of
disclosing KPIs for the same date, creating further data challenges, and called for a phased-in
approach.
306. Data concerns were followed by challenges relating to IT capacity and capabilities in terms
of the average challenge score assigned. An example given for the challenges related to IT
capacity was the fact that current systems tend to classify counterparties only by one economic
activity, which will need to be changed in order to incorporate and apply the EU Taxonomy.
Several respondents stated that extensive developments and extensions to IT systems would be
necessary, also including the collection and storage of data.
307. Challenges related to staff availability and challenges due to priorities (other more pressing
projects on-going), ranked third overall (average challenge score of 7). Two banks identified
priorities as extremely challenging (10)- one of the reasons being that since the timing of the
applicability of the Taxonomy remains unclear, priorities today in terms of IT development, staff
training, etc. are placed elsewhere (see next paragraph). Financial resources that can be spent
on the design and development scored the least challenging on average, but stark differences
are observed across banks, with some respondents still perceiving financial resources as fairly
challenging. See Figure 15.
308. Three banks identified other challenges, inter alia, training challenges, the lack of a clear
methodology as well as regulatory uncertainty. Frequent doubts and uncertainty regarding the
interpretation of, for example, certain criteria or DNSH conditions, were voiced, and a
streamlining or development of a user guide was proposed. The Taxonomy’s complexity was
stated, together with insufficient clarity on the taxonomy roadmap, resulting in a focus on the
bank’s own internal ESG agenda and hence to date no investment in the taxonomy application,
in turn implying greater challenges to kick start the taxonomy application. Uncertainties with
regard to regulation and timing were also stated to have so far not shifted the priorities
sufficiently towards the Taxonomy and the related investments needed (IT, staff training, timing,
etc).
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Figure 17: Scoring of key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (10 = extremely challenging, 0 = not at all challenging)
Estimated cost contribution of different cost factors for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy
309. Perceived relative cost contributions are generally consistent with the perceived areas of
challenges. IT capabilities to be built were seen as the highest cost contributor across the
responding banks. 71% estimate the costs to be high, and the remaining 29% still estimate
medium costs. Additional staffing and training of staff was also assessed to present a high
contribution to costs by 71% of the responding banks, with the remainder either anticipating
medium or low costs (one bank mentioned high costs for additional staffing, particularly as a
result of multiple requests from supervisors in this area). Also, integration of the verification of
the taxonomy criteria in existing processes was considered to be operationally difficult and
challenging at the staff level, as the information usually refers to aspects that are technically
complex and not typical of bank staff duties or knowledge.
310. Time and research needed was estimated to have a high cost contribution for 57% of the
banks, and a medium cost contribution for the remaining 43%. Over half (57%) of the
respondents also estimate client engagement and financial resources to be spent on data
acquisition as a high cost contributor.
311. Cost estimates are theoretical and high-level in nature. Ultimate figures will also depend
on the final design and details of the delegated act.
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Figure 18: Estimated cost contribution of each factor for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy
7.1.2 Questions on specific KPIs and counterparties
312. In order to give an indication of the costs and impacts of the specific KPIs proposed in the
EBA’s response to the CfA, the EBA included questions in the case study relating to the various
specific KPIs proposed, differentiating by counterparties and different parts of the loan book.
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Volume of financial assets (loans and advances, debt securities, equity) financing sustainable economic activities contributing substantially to climate mitigation and/or adaptation according to the EU Taxonomy
Figure 19: Costs associated with different KPIs proposed
313. New versus existing exposures: No significant difference can be observed in the costs
responding banks associate with respect to new exposures versus existing exposures. For new
government exposures in the non-trading book, 43% estimate the costs associated with
assessing the volumes of financial assets financing sustainable economic activities contributing
substantially to climate change mitigation and/or adaptation according to the EU Taxonomy as
fairly high. Two banks anticipate them to be very high, and two other banks as low or cannot
say. For existing exposures, 43% of responding banks again estimate these costs to be fairly high,
whilst the remainder again assesses the costs as either high, low or not able to be assessed.
Similarly, for the non-financial corporates segment, assessing the volume of assets associated
with financing sustainable economic activities contributing substantially to climate change
mitigation and or/adaptation according to the EU Taxonomy is stated as fairly costly in the non-
trading book for new exposures by all but one bank, whilst the majority of respondents assesses
this as fairly costly (57%) and two as very costly for the existing exposures (one bank could not
say). For the assessment of assets in the new exposure SME segment, six of the seven banks
(86%) anticipate very high costs and one bank estimates fairly high costs. For existing exposures,
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figures are very similar with five respondents (71%) and one respondent anticipating this to be
very and fairly costly, respectively, while one bank was not able to estimate the costs. Costs
associated with assessing the household sector are indicated as being identical overall across
new and existing exposures: 57% of the banks anticipate this process to be very costly, one bank
as fairly costly and two banks cannot say.
314. One reason given for the costs related to new and existing exposures being equal, was that
the assessment would require the same level of effort in the build-up phase. However, it can be
assumed that taking into account the volume of existing exposures, overall costs (in terms of
time) may be assessed as somewhat higher for existing exposures since data for more
counterparties will need to be collected and assessed. Further, the same respondent assumes
that since disclosure of taxonomy alignment will be made at holding company level, there is only
likely to be a small share of new exposures to holding companies that are not yet part of the
existing portfolio.
315. One bank stated that assessing and cataloguing existing exposures would be extremely
challenging, if not impossible. It views the review of existing exposures as involving
unsurmountable data challenges, also stating a difference between client engagement for new
operations and the engagement with clients on other data, which in their view makes asking
customers for the required information not feasible (due to associated costs for clients).
316. Trading book versus non-trading book exposures: Similarly, comparing the trading book
and non-trading book exposures for NFCs and government assets, no significant differences
can be observed in the estimated costs. For government assets, there is somewhat more
uncertainty towards the estimation of costs in the trading segment (43% of respondents cannot
say for both new and existing exposures). For NFC assets, there is also more uncertainty in the
trading book, but at the same time one respondent estimates associated costs for the trading
book as being lower than in the non-trading book for both new and existing exposures. Another
respondent estimates costs to be higher for the trading book.
317. Nevertheless, some responses reiterated that the exclusion of the trading book was
favoured, given its short term nature and very different purpose (provision of liquidity and risk
hedging tools versus financing longer-term, sustainable activities).
318. Different counterparties: Differences, however, exist in the estimated costs across KPIs
for different counterparties, with the implementation of KPIs in the SME and retail sector stated
as having the highest costs by responding banks (consistent with the data issues outlined in the
previous section). Over half (57%) of the banks estimate costs to be very high for the retail
segment across both new and existing exposures, with the remainder either still expecting fairly
high costs or not being able to say. For the SME segment, high costs are expected by an even
larger share of respondents. Six out of the seven banks (86%) expect KPIs for the SME sector to
be very high for new exposures, and five out of the seven banks (71%) estimate them to be very
high for existing exposures (note that one bank changed its response to ‘cannot say’ for existing
exposures, so it can be assumed that costs are likely to be equally as high as for new exposures).
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Costs related to KPIs for NFC and governments are in many cases estimated as fairly high, across
all portfolios. A few banks see them as very costly.
319. In addition to the data challenges present in the SME and retail segment, some reasons
provided for the high costs expected in this segment include the fact that developments in IT
systems may be more costly for the retail segment and the fact that costs very much depend on
how the data is collected and calculated (in-house or through external providers). In-house data
collection is very costly, and since external data providers do not cover SMEs and retail clients,
the development of KPIs for the latter two segments will imply more costs for institutions.
320. It has also been stressed that as intermediaries only, it would be extremely costly for banks
to gather information which is not publicly available due to some counterparties not being
covered by the NFRD (i.e. counterparties such as SMEs and retailers). Even if the scope of the
NFRD was extended or disclosure of taxonomy alignment was assumed by all, some institutions
estimate the costs as being substantial as: i) IT systems would have to be updated (inventory,
labels, tags), ii) linking and checking counterparties is stated to be substantial, iii) monitoring of
the use of proceeds is expected to be manual.
321. Finally, on the retail side, the main concern seems to relate to general consumer loans
rather than mortgage portfolios. One bank argues that an assessment of SME loans could only
be applied where there is a specific and known use of proceeds (e.g. solar investments), as
otherwise, the implied costs would be disproportionate.
Volume of loans collateralised by immovable property contributing to climate change mitigation
322. No major differences can be observed in the cost estimates for KPIs for loans
collateralised by immovable property contributing to climate change mitigation applicable to
new exposures or existing exposures. The overall cost distribution for ‘very costly’ and ‘fairly
costly’ was identical for all counterparties across the two. Only one bank estimates limited costs
for the new exposures, but expects KPIs for existing exposures to be very costly (another bank
expects very high costs for new exposures, but cannot say for existing exposures).
323. Regarding the different counterparties, respondents again saw the retail segment as the
most challenging, followed by SMEs and then municipalities. In line with cost estimates for the
KPIs discussed above, at least half of the respondents anticipate KPIs to be very costly for the
SME and retail segment (57% in the case of SME, and 71% in the case of retail).
324. Specific challenges raised for the retail segment were the lack of availability of up-to-date
energy certificates from centralised repositories, the availability of energy certificates for loans
prior to certain dates, as well as the comparability of energy certificates across jurisdictions. A
centralised repository at EU level and legal provisions for banks to be granted access to energy
efficiency labels were raised as a key factor that could decrease costs for the retail segment.
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325. One respondent stated that challenges were not so much encountered at individual
counterparty level, but rather were highest at the portfolio level due to costs related to the
development of IT systems for data mining and reporting purposes.
Figure 20: KPIs for loans collateralised by immovable property
KPIs for fee and commission income
326. Cost estimates for setting up KPIs for fee and commission income deriving from products
or services provided to non-financial corporates (NFC) other than lending associated with
taxonomy-aligned economic activities that contribute to the environmental objective of climate
change mitigation were mixed amongst participating banks. Approximately 43% of all
respondents assume costs to be very high, whilst the same proportion of responding banks was
not able to provide an answer. One bank anticipates limited costs. The reasons stated here are
that customer assessment capabilities from the corporate loan portfolio can be leveraged on,
and that monitoring of the use of proceeds is the responsibility of investors and hence lower
than that expected for financing activities.
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Figure 21: KPI for fee and commission income: Climate change mitigation
Figure 22: KPI for fee and commission income: Climate change adaptation
7.1.3 Additional information about the portfolio composition
327. In order to gain more insight into the extent of the challenges faced by institutions, the
case study also included some questions on portfolio composition.
328. One challenge that has been repeatedly voiced during discussions with the industry is the
fact that most of banks’ lending is ‘general purpose’ lending, i.e. that the use of proceeds is
unknown and that it is therefore challenging to clearly classify the use of proceeds according to
the Taxonomy. As developed in the section on proposed KPIs, in cases where the use of proceeds
is unknown, institutions should rely on the information disclosed by undertakings as per Article
8 of the EU Taxonomy (the percentage of their turnover associated with activities contributing
to climate change mitigation or climate change adaptation). For larger corporates, information
as per Article 8 of the EU Taxonomy will be available, whilst for SMEs this will be more
challenging as data and information may have to be collected on a bilateral basis.
329. Of the banks participating in the case study and providing a reply to the question, the vast
majority of their portfolios have unknown use of proceeds. One bank stated this portion to be
as high as 99%. In addition, the portion of the portfolios in which counterparties do not fall under
the scope of the NFRD and for which company information is likely to not be publicly available,
was in some cases substantial (the shares provided for counterparties outside the NFRD scope
range between 30% and 95% for banks providing answers34).
34 These are in many cases estimates and sometimes relate to different parts of the portfolio.
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330. The high share of the portfolios with unknown use of proceeds or exposures to
counterparties outside of the scope of the NFRD and hence with limited publicly available
information may imply substantial costs for institutions, at least in the early stages of
implementation (once counterparties have been assessed and classified once, the procedure
should become less cumbersome).
331. Another portfolio attribute raised, that may make it difficult to assess taxonomy alignment,
was a high share of a portfolio allocated to trade finance activities on which little information is
available since deals are short term. This implies that an assessment would be required of
counterparties that are different to the counterparties considered for the usual risk
management purposes (and for which data are therefore collected).
7.2 Investment firms
332. Only one industry association replied to the survey with questions on investment firms.
This section presents the cost estimates submitted by this one respondent where information
could be used.
7.2.1 Key challenges and costs of KPIs for taxonomy alignment
Key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy
333. Like banks, data availability was perceived by the respondent as the most challenging for
investment firms, with a score of 10 (extremely challenging). The availability of financial
resources that can be spent on the design and development of KPIs was also given a high
challenge score of 8. In regard to other challenges, the respondent cited the timing of the
application of disclosure requirements to asset managers and non-financial corporates.
Application of disclosure requirements to asset managers as of January 2022 is seen as
meaningless if underlying disclosure information from corporates is not yet fully available.
334. A sequenced approach is therefore proposed, with the application of disclosure
requirements by asset managers to apply only from January 2023, once data from issuers is
available. In the meantime, a suggestion was made to disclose the planned proportion of
taxonomy-compliant investments in 2022, if such investments are part of a product’s
investment strategy, in the precontractual document. At the same time, Level 2 measures could
ensure legal certainty for market participants by clarifying that reasonable estimations of EU
Taxonomy compliance are accepted as a transitional solution while promoting swifter
implementation by companies.
335. The development of IT capacity was scored by the respondent with a challenge score of 7.
The level of training/skill sets and staff availability does not seem to be perceived as a key
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concern, scoring at 5 and 4, respectively. Priorities on other more pressing projects on-going are
perceived as the least challenging factor for investment firms.
Figure 23: Scoring of key challenges for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (10 = extremely challenging, 0 = not at all challenging)
Estimated cost contribution of different cost factors for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy
336. Time and research as well as financial resources to be spent on the acquisition of data were
stated by the respondent to be the highest cost factors. The training of staff, development of IT
capabilities and engagement with investee companies were estimated as medium cost
contributors for investment firms, with additional staff necessary anticipated as creating low
costs.
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Figure 24: Cost contribution of various factors for the implementation of KPIs and methodologies to measure alignment with the EU Taxonomy (investment firms)
337. Costs are assumed to be limited in nominal terms, if disclosure by non-financial
undertakings is ensured. Most of the costs are expected to come from data acquisition, analysis
and aggregation and presentation in reports.
338. Facilitating measures for data availability are stated as the European Single Access Point to
include a specific segment on taxonomy-related disclosures, the adoption by European
institutions of measures that facilitate the availability and machine-readability of ESG
information, methodologies to be developed for undertakings falling outside the scope of the
NFRD, and development of an open source internet tool for disclosure data.
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ANNEX III – Aggregate coverage of KPIs proposed for credit institutions
339. KPIs have been proposed to cover the following counterparties: credit institutions, other
financial corporates, non-financial corporates (including SMEs) and parts of retail exposures
(loans collateralised by immovable property and consumer credit loans). The EBA’s reporting
data allow for a better understanding of the proportion of EU credit institutions’ assets that
would be covered by the KPIs proposed. This section provides an overview in that respect of the
different types of exposures, counterparties and geographies relevant for the considerations
that have been discussed in this CfA.
340. The proposed EU GAR covers more than 50% of EU banks’ total financial assets (as of Q3
2020). The non-EU information on the green asset ratio on ‘best effort basis’ by credit
institutions with non-EU subsidiaries would cover up to 14% of banks’ total financial assets,
whilst the KPIs for assets held for trading would cover up to 15.5% of total EU banks’ assets
(noting that not all banks will disclose KPIs for assets held for trading, see section 3.2.5).
Approximately 20% of EU banks’ aggregate financial assets would not be covered by any of the
KPIs proposed (namely sovereign exposures, central bank exposures and retail exposures other
than mortgages and consumer credit - see Figure 25).
Figure 25: Coverage of the KPIs proposed in the advice (as a share of total EU financial assets)
Note: ‘Other exposures’ include central bank exposures and retail exposures other than mortgages and consumer credit. Source: EBA FINREP Data.
341. In terms of exposures to different counterparties and their eligibility under the GAR on EU
exposures, residential real estate exposures account for the highest share (32.9%), followed by
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NFCs other than SMEs (25.3%), and SMEs (18.7%). The remainder is made up of exposures to
other credit institutions (8.3%), exposures to other financial corporates (7.5%) and consumer
credit (7.2%) (see Figure 26).
Figure 26: GAR on EU exposures: share of different counterparties (as of Q3 2020)
Source: EBA FINREP Data.
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Figure 27: EU institutions' exposures by different types, counterparties and geography as of Q3 2020
Trading book EU average
Share of the trading book as a % of total financial assets 15.5%
Counterparties*
EU average: Share of total financial assets EU average: Share of
total financial assets (excl. trading book)
Share of sovereign exposure (%) 12.2% 14.5%
Share of exposures to credit institutions (%) 6.8% 8.0%
Share of exposures to other financial corporations (%) 6.4% 7.6%
Share of NFC exposures (%) 27.9% 33.1%
Share of loans to SMEs (%) 10.9% 12.9%
Share of NFC loans collateralised by immovable property (%) 6.0% 7.1%
Share of retail exposures (%) 29.8% 35.3%
Share of retail exposures collateralised by immovable property (%) 19.3% 22.9%
Share of consumer credit (%) 4.3% 5.0%
EU exposure** EU average
Share of EU institutions' exposures to the EU (equity instruments, debt securities, loans and advances) (%) 77.2%
By selected counterparties:
Credit institutions: share of EU exposures (%) 62.2%
Other financial corporates: share of EU exposures (%) 59.3%
NFCs: share of EU exposures (%) 74.9%
SMEs: share of EU exposures (%) 86.7%
Household: share of EU exposures (%) 85.7%
*Nominators exclude the trading book. **Shares refer to non-trading book exposures only. Source: EBA FINREP Data.
343. The implied overall coverage of the proposed KPIs amounts to 75% of total non-trading
book exposure of EU banks (see Figure 28). The GAR proposed for EU assets only would in turn
cover just under 60% of total non-trading book assets35. Figure 28 provides an overview of the
share of the different counterparties and types of exposures discussed in this call for advice.
35 62.2%, 59.3% of credit institutions and other financial corporates are exposures in the EU. 74.9% of the NFC exposure, 85.7% of SME exposure and 85.7% of retail exposure are in the EU. For retail exposure collateralised by immovable property and consumer credit, no shares of EU exposures are available, but are approximated with the household exposure share in the EU. Hence (8%*62.2%+7.4%*59.3%+12.9%*86.7%+(33%-12.9%)*74.9%+(23%+5.1%)*85.7%.
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Figure 28: EU banks' exposures by different types, counterparties and geography as of Q3 2020
Trading book EU average Min Max Median
Share of the trading book as a % of total financial assets 15.5% 0.0% 41.8% 2.3%
Counterparties
Share of sovereign exposure / total non-trading book exposure (excl. cash balances) (%) 14.5% 0.2% 89.3% 15.3%
Share of exposures to credit institutions / total non-trading book exposure (excl. cash balances) (%) 8.0% 0.1% 90.1% 6.0%
Share of exposures to other financial corporations / total non-trading book exposure (excl. cash balances) (%) 7.4% 0.0% 25.6% 4.4%
Share of NFC exposure / total non-trading book exposure (excl. cash balances) (%) 33.0% 0.0% 69.0% 32.5%
Share of loans to SMEs / total non-trading book exposure (excl. cash balances) (%) 12.9% 0.0% 60.0% 14.3%
Share of NFC loans collateralised by immovable property / total non-trading book exposure (excl. cash balances) (%) 7.1% 0.0% 64.6% 7.9%
Share of retail exposure / total non-trading book exposure (excl. cash balances) (%) 35.4% 0.0% 85.8% 36.1%
Share of retail exposure collateralised by immovable property / total non-trading book exposure (excl. cash balances) (%) 23.0% 0.0% 80.2% 23.5%
Share of consumer credit / total non-trading book exposure (excl. cash balances) (%) 5.1% 0.0% 59.6% 2.6%
EU exposure
Share of EU banks' exposure to the EU (equity instruments, debt securities, loans and advances) (%) 77.2%
By counterparty:
Credit institutions: share of EU exposure (%) 62.2%
Other financial corporates: share of EU exposure (%) 59.3%
NFCs: share of EU exposure (%) 74.9%
SMEs: share of EU exposure (%) 86.7%
Household: share of EU exposure (%) 85.7%
Note: The maximum shares for sovereign exposure and credit institution exposures are outliers. All other banks have shares generally below 50%.
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Annex IV - Other feedback from the industry
344. The EBA has engaged and closely interacted with representatives of credit institutions and
investment firms in order to collect technical input and feedback for the EBA policy work on ESG
disclosures, including the response to the Commission’s call for advice on disclosures under
Article 8 of the Taxonomy Regulation and the development of technical standards on Pillar 3
disclosures on ESG risks by institutions under the scope of the Capital Requirements Regulation
(CRR)36:
The EBA launched a survey on disclosures of ESG risks, published on 16 September,
addressed mainly to large credit institutions (the ‘Survey’). The Survey included the three
questions that the EBA is asked to respond to in the CfA, together with questions regarding
carbon related exposures, physical risk, other environmental risks, and social and
governance risks. Institutions had until 17 October to respond to the Survey. The EBA
received 54 responses from different types of institutions (universal banks, saving banks,
credit cooperatives, public banks, industry associations and development banks).
The EBA also held bilateral meetings with industry associations, where EBA staff had the
opportunity to exchange views and interact with the associations’ representatives and with
their members.
Finally, the EBA held, on 20 October 2020, a workshop with banks and banking associations.
An open discussion with the participants followed a set of presentations from the EBA, the
European Commission and the JRC. Industry representatives had the opportunity to explain
their views and provide technical feedback on several topics, which included the definition
of a green asset ratio (GAR), the application of the EU Taxonomy to banks’ activities,
exposure classification and KPIs for carbon-related environmentally harmful exposures,
information on Scope 3 emissions and KPIs, and classifications relevant for the purpose of
disclosures on physical risk.
345. The EBA has, in addition, liaised with investment firms and the competent authorities in
charge of their supervision to collect evidence and technical input for the EBA’s response to the
CfA, and an ad-hoc survey for investment firms was also conducted
346. Final, the EBA launched a case study with a selected group of banks on 24 November to
better understand the specific costs associated with KPIs to be proposed as part of the response
to the CfA (please refer to section 7 of this report).
36 Article 434a of the CRR mandates the EBA to implement the prudential disclosure requirements included in Article 449a of the same Regulation, according to which large institutions with traded issuances shall disclose information on ESG risks, including transitional and physical risk
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347. This section presents an overview of the feedback, main findings and conclusions received
from the surveys and from meetings and workshops with credit institutions.
7.3 Summary of the feedback received – Credit institutions
7.3.1 Responses to the EBA survey
348. The majority of institutions participating in the Survey do not include qualitative or
quantitative information on ESG risks in their Pillar 3 reports. However, the results show that
the information contained in non-financial reports may provide a starting point for future Pillar
3 disclosures. Moreover, approximately half the respondents claim to be disclosing information
from a double materiality perspective. The disclosure of qualitative information on climate-
related and/or other environmental risks includes, at least to some extent, information on
business strategy and business model, governance, risk management and other information. In
most cases, the quantitative information on climate-related and/or other environmental factors
disclosed is not aligned with the information and metrics included in the Commission non-
binding guidelines on reporting of climate-related information or/and in the EBA Action Plan on
Sustainable Finance.
349. In general, respondents support the disclosure of the share of taxonomy-aligned assets.
They consider that the KPIs provided in the EU Taxonomy Regulation for non-financial
corporates (NFC) in terms of turnover, Capex and Opex are not suited for institutions’ reporting
and that, alternatively, a green asset ratio (GAR) would be a better fit for purpose. While
supporting the GAR as an appropriate KPI to show the taxonomy alignment of banks,
respondents also raise some drawbacks, linked to the strict screening criteria proposed by the
Taxonomy Regulation for an activity to be considered as ‘green’, the availability of data, or the
need to apply holistic assessments for monitoring banks’ activities.
350. The vast majority of institutions do not currently disclose a GAR, not even in terms of
estimates and ranges, or qualitative information on how they plan to develop one. In most cases
(approximately 75% of respondents), institutions do not use the EU Taxonomy for their
definitions and criteria. Banks’ green disclosures do not generally take the form of ratios but
rather commitments to provide a certain volume of green finance in a certain period of time, or
qualitative information on their environmental strategy.
351. Regarding the calculation of a GAR and the metrics proposed in the EBA Action Plan on
Sustainable Finance and the Commission non-binding guidelines on climate-related reporting,
institutions tend to agree that the proposed metrics are appropriate for estimating a GAR for
corporate exposures, for residential real estate portfolios and for bond portfolios.
352. One frequent recommendation is to calculate the GAR as the proportion of the ‘Volume of
Eligible Financial Assets that are EU Taxonomy-aligned’ / ‘Total Eligible Financial Assets’, with
Eligible Financial Assets defined as ‘all asset classes for which the EU Taxonomy can apply’, with
the appropriate phasing.
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353. Considering financial or broader commercial activities to be included/excluded in Article 8
disclosures, the majority of respondents expressed a preference for focusing on credit (and to a
lesser degree investment) activities, in particular on those asset classes where the Taxonomy is
more easily applicable, such as corporate loans and/or project finance facilities with specified
use of proceeds.
354. Institutions tend to agree that exposures to non-EU, retail and SMEs raise big challenges as
the EU Taxonomy criteria are not applicable or appear to be complex and less suitable. At the
same time, some banks noted that, at least in the form of qualitative or complementary
information, their contribution to sustainability (environmental objectives other than climate-
related, social impact, etc.) should also be captured, including the sustainable solutions they
offer to retail customers and SME clients.
355. The proposed eligible assets include all banking products with the use of proceeds covered
by the EU Taxonomy, including general purpose loans to companies undertaking EU Taxonomy-
compliant activities, performance bonds to support an EU Taxonomy-aligned activity, financial
guarantees to support the payment obligations arising from financing an EU Taxonomy-aligned
activity and, in the medium-term, mortgage loans, once data are available. There is extensive
agreement that disclosures should include information in terms of the stock of loans and new
lending.
356. There is broad consensus that the following products should be left out of the GAR
calculation: general purpose loans (unless to companies with EU Taxonomy-compliant
activities), reserves in central banks, trading book assets, hedging derivatives and sovereign
debt, in the absence of disclosures or methodologies to assess their alignment.
357. Only a minority of institutions claim that there should be a specific metric to disclose the
GAR for a trading portfolio. Respondents expressed concerns that trading book assets do not
serve a financing purpose for green exposure monitoring and that a GAR for a trading portfolio
would be very volatile and could lead to ‘window-dressing’ practices distorting market prices.
358. Most institutions do not disclose a ratio indicating environmentally harmful exposures37.
About 40% of institutions agree at least partially that the metrics included in the Commission
non-binding guidelines on climate change reporting are appropriate and around half of them
that the metrics reflecting concentration risk on environmentally harmful assets are
appropriate.
359. A small number of institutions also disclose information on Scope 3 emissions, including
emissions related to activities of their counterparties. Most of the institutions disclosing Scope
3 emissions use the methodology of the PCAF Global Carbon Accounting Standards.
37 This document uses the term ‘brown’ as this was the wording used in the survey. However, for drafting going forward the terminology may need to be changed and aligned with the Taxonomy Regulation or the work of the Platform on Sustainable Finance (e.g. ‘environmentally harmful exposures’, ‘high impact activities’).
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360. Those institutions disclosing qualitative information on social risks provide at least to some
extent information on business strategy and business model (77%), governance (79%), risk
management (77%) as well as other information (68%). Some institutions provided in their
response examples of the disclosures of quantitative information.
361. Those institutions disclosing qualitative information on governance risks provide, at least
to some extent, information on business strategy and business model (65%), governance (69%),
risk management (67%) as well as other information (41%). Some institutions also provided
examples of the disclosures of quantitative information.
362. Regarding the interaction of Pillar 3 information with other frameworks, most institutions
agree that information to be disclosed in Pillar 3 reports is or should be complementary to
information to be disclosed under other pieces of regulation (including the SFDR, NFRD and EU
Taxonomy Regulation) with some common information relevant for the different frameworks.
A high number of institutions highlight the need to reduce the reporting burden and ensure
consistency across the various reporting formats with coordination in the policy work and
harmonised definitions needed.
363. Regarding the scope of Pillar 3 disclosures in terms of transition risk, institutions tend to
agree that the information should be assessed together with counterparty’s carbon emission
strategies and with how a bank is managing the transition risk. Most respondents agree that an
institution which aims to improve its green asset ratios and/or reduce its brown asset ratios is
mitigating its exposures to transition risks. Information on mitigating actions in the case of Pillar
3 disclosures should cover not only information on exposures financing economic activities
compliant with the Taxonomy, and information on the GAR should be complemented with
information on other mitigating actions. Respondents agree that prudential disclosures should
include forward-looking information.
364. A number of reservations regarding the classification of exposures have been expressed.
According to some institutions, a company’s transition cannot be purely measured by a point in
time classification of ‘green’/’brown’ and a GAR cannot measure risk. Additionally, institutions
note that an increase in the GAR could be purely a result of increased data availability.
365. In general, institutions agree that the classification of exposures in terms of the level of
exposure to physical risk should follow criteria based on the geographical location of the
exposure and the identification of those geographies more exposed to physical risk.
Respondents also indicate that this classification should consider other criteria.
366. Institutions agree that it is challenging to obtain access to the information that they need
from their counterparties in order to prepare their own disclosures. Respondents tend to agree
that the NFRD review should provide a very good basis for addressing the lack of available
information from institutions’ counterparties and that the implementation of the EBA
Guidelines on loan origination and monitoring should help them get the information that they
need on a bilateral basis. Respondents expressed a need for a centralised database for
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companies subject to NFRD reporting, where benchmarking at EU level could be established.
Institutions would appreciate a realistic and pragmatic approach for banks’ disclosure
requirements, including considering phasing in the requirements as data become available.
7.3.2 Feedback from bilateral meetings with stakeholders and the EBA workshop
367. Many elements of the feedback received from institutions during engagements matches
the information collected in the Survey. The main findings are described below.
Disclosure should differentiate between information on stocks of loans and flows, which
should provide a good view of the transitioning part.
The classification of exposures should be based on the information of the counterparty,
either public information or information received on a bilateral basis.
General loans could be classified depending on the percentage of the counterparties’
activities that are covered by the EU Taxonomy and aligned with it, the percentage covered
but not aligned with the EU Taxonomy and the relative part of their activities that are not
covered by the EU Taxonomy. In those cases where the information is not available, proxies
could be applied.
There is a need to complement the disclosure of the GAR that shows the part of institutions’
balance sheets that is aligned with the EU Taxonomy with the information on fees and
commissions for commission-generating businesses.
Institutions raised concerns about the use of the EU Taxonomy that could leave out
exposures that are considered by them as green but that are not taxonomy-compliant.
Some institutions suggested the introduction of sector-specific KPIs, rather than aggregate
KPIs for the lending portfolio.
Institutions underlined the importance of defining risk indicators focused on harmful
activities, and not only a GAR, for the purpose of the EBA technical standard on Pillar 3 ESG
disclosures.
Institutions agreed on the use of Energy Performance Certificates for mortgage portfolios
as the best estimate in residential real estate, acknowledging problems with information on
(particularly older) stocks of loans.
Institutions expressed a need to delimit the exposures to be considered under the GAR.
Most of the feedback received points out the convenience of excluding trading portfolios
(given the short-term nature of the holdings), exposures to central banks and sovereigns.
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Concerns have been expressed regarding the possible creation of a brown list of
exposures/sectors that could be harmful as it could create a ‘black list’ and fears of some
industries being left behind.
Disclosure of information on harmful exposures should be accompanied with information
on how the institutions plan to mitigate the risks associated with those exposures.
Institutions underlined challenges in measuring Scope 3 emissions. Several participants
highlighted the complexity related to the availability of emissions data for small companies
and that clients are often not aware of their own footprint.
Concerns were raised about disclosures related to social and governance risk in general, not
only because there is no taxonomy, but because of the lack of common definitions and clear
guidance.
Institutions expressed a need for a staged approach, which entails the phase-in of disclosure
requirements.
According to the institutions, draft ITS on Pillar 3 ESG disclosures and disclosures under
Article 8 of the Taxonomy Regulation should build on the TCFD and EBF/UNEP-FI work.
Institutions emphasised the difficulties of applying the EU Taxonomy and classification for
exposures outside the EU – they suggested different options including separate
treatment/disclosures of information on exposures inside the EU and outside the EU.
Institutions also stated the challenges in relation to the level of granularity and the difficulty
of assessing the ‘do no significant harm’ (DNSH) criteria in practice.
Challenges relating to the use of common databases and common criteria for geographical
classification in terms of level of exposure to physical risk were also brought up.
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EUROPEAN BANKING AUTHORITY
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